Jan 30 (Reuters) – A court-appointed examiner is expected to release a report Monday questioning whether bankrupt crypto firm Celsius Network operated as a Ponzi scheme, increasing pressure on founder Alex Mashinsky could, who is already facing allegations of fraud.
US bankruptcy judge Martin Glenn, who is overseeing the crypto lending platform’s Chapter 11 case, appointed former prosecutor Shoba Pillay as an independent examiner in September, tasked with investigating claims by Celsius customers that the company was a Ponzi scheme. system operates, and to report on the company’s handling of cryptocurrency deposits.
Hoboken, New Jersey-based Celsius filed for Chapter 11 bankruptcy protection in Manhattan last July after freezing customer withdrawals from its platform. On its balance sheet, the company posted a deficit of $1.19 billion.
Celsius had agreed to an auditor’s review after reaching a settlement that scaled back a wide-ranging investigation proposed by the US Department of Justice’s bankruptcy watchdog and the state securities commissions of Texas, Vermont and Wisconsin.
After appointing Pillay to the post, Glenn expanded her role by asking her to deal with persistent client complaints about Mashinsky’s behavior.
Mashinsky was sued earlier this month by New York Attorney General Letitia James, who claimed he defrauded investors out of billions of dollars in digital currency by concealing the lending platform’s ill health.
An attorney for Mashinsky did not immediately respond to a request for comment, but previously said his client denies the allegations and looks forward to vigorously defending himself in court. A spokesman for Celsius did not immediately respond to comment.
Mashinsky, 57, is an entrepreneur who founded companies like Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi services for the New York City subway.
In hundreds of interviews, blog posts, and live streams, Mashinsky, the public face of Celsius, promised customers high returns when they deposit digital assets on its platform, with minimal risk, according to New York AG’s lawsuit.
Bankruptcy examiners can provide courts, judges and creditors with an impartial view of a bankrupt company’s failure, but their costs are a frequent source of controversy when there are limited funds available to pay off existing debts.
Crypto exchange FTX, which filed for bankruptcy in November, has defied calls for an examiner in its own Chapter 11 case, citing the cost of overlapping investigations.
FTX CEO John Ray, who worked with auditors on the Enron and Residential Capital bankruptcies, said in a court filing that the auditors’ reports in those two bankruptcies combined cost $150 million and provided “minimal” benefits to creditors.
Pillay and her team sought $1.86 million for work done in October and $1.69 million for November, according to court documents.
Reporting by Dietrich Knauth, editing by Alexia Garamfalvi and Deepa Babington
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