Celsius creditors who withdrew 90 days before bankruptcy are asked to send money back

Celsius bankruptcy managers notified creditors that those who made large withdrawals in the 90 days leading up to the crypto lender’s bankruptcy will have to return part of the funds, or face legal action.

Account holders who withdrew more than $100,000 in the 90 days prior to July 13, 2022, the day Celsius declared bankruptcy , are liable to clawbacks, according to the notice published on Tuesday. 

Letters will soon be sent to the involved accounts, instructing them to make a payment of 27.5% of what they withdrew in the affected period, according to the document. If they comply, they will be eligible for future distributions under the reorganization plan.

"This notice is giving folks who have preference exposure above $100k – meaning that they withdrew $100k or more within 90 days of the filing date – to preemptively settle with the Estate for 27.5% of the amount they withdrew, without getting sued. They still have to vote to accept the plan and not opt-out of the releases," said Alan R. Rosenberg, a partner at Markowitz Ringel Trusty Hartog law firm.

Users who withdrew less than $100,000 do not have to return the money, he added, but they would still need to vote to accept the plan and not opt out of the releases under the plan. 

"People who do not comply with the above could potentially be sued to recover the preferences they received," Rosenberg added.

The bankruptcy saga

Celsius declared bankruptcy on July 13, 2022, as the crypto lender had a $1.2 billion hole in its balance sheet. In September 2023, creditors approved a reorganization plan, according to which holders of custodial accounts would get 72.5% of their holdings in bitcoin and ether, and holders of interest earning accounts would get a combination of crypto and shares of a new mining company that will be formed out of Celsius’ remaining assets. 

In November, Celsius emerged out of bankruptcy and opened withdrawals for eligible creditors. 

Celsius and its founder and CEO Alex Mashinsky were sued by the SEC , FTC and CFTC last year for misleading customers, and Mashinsky was charged with fraud. His trial is scheduled to start next fall.

Celsius settled with the FTC, agreeing to pay $4.7 billion after the bankruptcy proceedings are over.