Hopes for Leniency Dashed

Mashinsky’s defense argued for a lighter sentence — 366 days — citing his clean record, military service, and guilty plea. However, federal prosecutors pushed for a 20-year term, stating that Mashinsky targeted retail investors, not institutions. This fact ultimately led the court to impose a harsher penalty.

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Trump’s Pardon Legacy Fails to Influence Outcome

Former President Donald Trump previously pardoned high-profile crypto figures like Ross Ulbricht and BitMEX executives, raising hopes in some circles for clemency. Yet this case proved different. Despite arguments comparing him favorably to Sam Bankman-Fried, the court delivered a severe verdict.

With figures like Changpeng Zhao seeking clemency and others like Roger Ver and SBF under legal scrutiny, this ruling sets a precedent that crypto fraud, regardless of innovation or intent, will not be tolerated.

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According to a 97-page court filing dated April 28, Mashinsky deliberately misled thousands of Celsius users, which resulted in massive financial losses. The filing noted that customers lost access to nearly $4.7 billion worth of crypto assets when Celsius froze withdrawals on June 12, 2022.

“Alexander Mashinsky led a multi-year campaign of deceit, self-enrichment, and exploitation that devastated thousands and caused billions in losses. A 20-year prison sentence is a fitting consequence for his actions,” prosecutors stated.

$48 Million in Personal Profits

In a plea deal finalized in December 2024, Mashinsky admitted to being the mastermind behind the scheme and acknowledged that he personally made over $48 million while the total losses topped $550 million.

The DOJ emphasized that his fraudulent behavior was “not a matter of bad luck or naivety,” but instead involved intentional deception and theft to pursue personal wealth.

Sentencing Hearing Set for May 8

The sentencing hearing is scheduled for May 8 and will be overseen by U.S. District Judge John Koeltl in the Southern District of New York. According to prosecutors, more than 200 victims have submitted statements detailing their experiences and losses.

Other Celsius Co-Founders Also Named

While Mashinsky is seen as the central figure in the case, other Celsius co-founders were also implicated. Shlomi Daniel Leon, who co-founded Celsius in 2017, stepped down from his role in October 2022, just months after the company’s collapse.

In July 2023, both Leon and another co-founder, Hanoch Goldstein, were charged by the Federal Trade Commission, which also issued a $4.7 billion penalty against the now-bankrupt firm

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$127 Million Second Payment Plan

According to Celsius’ statement, eligible creditors will receive 60.4% of their claims in cash or cryptocurrency. Bitcoin’s value for the payment process was set at a weighted average price of $95,836.23. Creditors who cannot receive liquid cryptocurrency payments will be offered cash as an alternative. This flexible approach highlights a carefully designed solution to address the complex financial claims during the bankruptcy proceedings.

Roots of Celsius’ Collapse

Celsius declared bankruptcy in 2022 after revealing a $1.2 billion deficit in its balance sheet. The restructuring process began in November 2022, and by January 2023, the company completed its first major payment round. During that phase, $2 billion worth of cryptocurrency was distributed to 171,672 creditors, covering 57.65% of claims.

The downfall of Celsius was attributed to its risky business model and poor liquidity management, serving as a cautionary tale for the crypto sector. It underscored the regulatory gaps in the industry and highlighted the need for greater transparency in managing customer funds.

CEO Alex Mashinsky’s Legal Troubles

Former Celsius CEO Alex Mashinsky faces severe allegations following the company’s financial collapse. He has been accused by the SEC, FTC, and CFTC of misleading customers and committing fraud.

Mashinsky could face up to 115 years in prison if convicted. Earlier this month, a U.S. court rejected his request to dismiss two fraud charges, further complicating his legal battle.

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According to court filings, as of January 16, these distributions have reached around 251,000 creditors, representing approximately two-thirds of all eligible creditors and accounting for 93% of the total value distributed.

Despite significant progress, nearly 121,000 eligible creditors have yet to claim their distributions, which average around $1,500 each. Of these, 64,000 are owed less than $100, while 41,000 are set to receive between $100 and $1,000. The filing suggests that the relatively small sums involved might not be enough to motivate some creditors to take the necessary steps to claim their funds.

The bankruptcy case officially concluded after the U.S. Bankruptcy Court for the Southern District of New York approved a restructuring plan in November. The plan, finalized in January, outlined the distribution of over $3 billion to Celsius creditors.

The filing describes the ongoing process as “the most complex and ambitious distribution effort ever attempted in Chapter 11 cases.” The plan includes the distribution of liquid cryptocurrencies, cash, and shares in MiningCo, a new company created from Celsius, to approximately 375,000 creditors across 165 countries.

The complexity of the process has been exacerbated by Celsius’ non-compliance with regulations before bankruptcy and the numerous enforcement actions brought against the company by regulators.

Earlier this month, Celsius requested that the court order Tether to hand over approximately $3.3 billion worth of Bitcoin, a demand that Tether has labeled as “extortion,” with Celsius planning to contest the characterization.

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Along with the $1.1 million proceeds of a Mutant Ape Yacht Club sale now held in escrow, the settlement deal will see KeyFi transfer a multiplicity of assets to Celsius, including wallets containing hundreds of different tokens and significant NFTs. KeyFi will also move DeFi protocol assets Spartan, Unslashed, Stakehound, and crypto company Fireblocks.

Celsius, per the agreement, will sell the assets over the following twelve months. Celsius will pay KeyFi and Stone a first payment of $300,000 plus a rare one-of-one NFT by Marco Santorini. Then, up to $500,000, Celsius will pay 10% of the liquidations to KeyFi. (This cap will probably be achieved given that the assets in issue include multiple valuable NFTs.)

Usually in tiny amounts, the wallets in issue hold a great range of crypto coins. Among many others, the wallets have roughly $500 worth of Dogecoin and roughly $2,600 worth of USD Coin stablecoins.

Still, the wallets also feature a number of valuable NFTs: 13 CryptoPunks, three Fidenzas by Tyler Hobbs, 19 Meebits, four Mutant Apes, 14 Otherdeeds, and hundreds of additional tokens from projects such as World of Women, Art Blocks, and Rarible. Given that NFT demand has mostly dried up over the past year, the liquidation of these NFTs by Celsius could affect the floor price of the collections.

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The legal team of Kirkland and Ellis, representing Celsius, recently submitted an update on the creditor distributions in the restructuring plan in a court file. This announcement was made after Celsius emerged from bankruptcy and most eligible creditors are now receiving their crypto distributions through two distribution agents, PayPal and Coinbase.

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According to Kirkland and Ellis, crypto distributions to owners in the United States are made through PayPal, while owners abroad are managed by Coinbase. In total, cryptocurrencies worth 2 billion dollars, including 20,255.66 Bitcoin, have been distributed to creditors.

In the stated application, it is stated that the claims of account owners who did not approve the restructuring plan need to be resolved individually. During this process, cooperation continues with PayPal and Coinbase, the payment and distribution agents, thus distributions are made to eligible creditors. In the crypto industry, there are various speculations about how the steps in Celsius’s restructuring plan could affect the broader crypto market.

On January 5, Cointelegraph reported that Celsius started to call back and rebalance its crypto assets to ensure timely distribution to creditors. However, the blockchain analysis firm Nansen highlighted that nearly one-third of the ETH in the pending withdrawal queue currently belongs to Celsius.

In October 2023, Celsius requested the court to approve the restructuring plan, hoping to repay creditors by the end of 2023. In the meantime, the cryptocurrency lending corporation’s former CEO, Alex Mashinsky, is expected to stand trial in September 2024 in connection with the collapse of Celsius. However, the legal team faced a review recently due to a potential conflict of interest as it also represents Sam Bankman-Fried, the former CEO of the bankrupted cryptocurrency exchange FTX.

On February 6, US attorneys expressed their concerns about the attorneys Marc Mukasey and Torrey Young, who filed a notice of hearing in criminal cases brought against former cryptocurrency CEOs. According to Cointelegraph, the US government may request a Curcio hearing for the judge to ask questions about the potential conflicts of interest and why both lawyers are involved in the Bankman-Fried and Mashinsky cases.

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The detailed plan includes a distribution of over $3 billion in cryptocurrency and fiat to Celsius’ creditors. Specifically, as part of the plan, a Bitcoin mining company owned by Celsius’ creditors, Ionic Digital, Inc., was formed and its operations will be managed by Hut 8 Corp. (Nasdaq | TSX: HUT).

After the plan’s approval, Celsius decided to move to a “Mining Transaction” in collaboration with the Securities and Exchange Commission (SEC) and the Official Committee of Unsecured Creditors (UCC). Additionally, the company increased the amount of cryptocurrency to be distributed to creditors by nearly $250 million by converting altcoins to BTC or ETH and resolving prior agreements. The Bankruptcy Court approved the Mining Transaction on December 27, 2023.

Celsius has begun distributing over $3 billion

As part of the Mining Transaction, Celsius has begun distributing over $3 billion in liquid cryptocurrency and fiat to creditors. The newly formed Bitcoin mining company, Ionic Digital, is expected to go public once it obtains the necessary approvals. Celsius’ creditors will own shares in Ionic Digital in the form of common stock.

Plan Administrator and former Celsius executive Chris Ferraro highlighted the commitment to maximizing value and speed for creditors, saying, “Today, 18 months after Celsius halted withdrawals, we began distributing $3 billion in cryptocurrency, fiat, and shares in Ionic Digital.”

Members of Celsius’ Board of Directors Special Committee, David Barse and Alan Carr, expressed pride in overcoming the challenges they faced during the Chapter 11 process. Celsius’ accomplishments include securing cryptocurrency assets, reaching an agreement with preferred shareholders, forming a litigation trust, and providing resolutions with regulatory bodies.

To ensure compliant distributions, Celsius worked closely with the UCC and various federal and state regulatory agencies throughout the restructuring process. Matt Prusak, Chief Commercial Officer of Hut 8, has been appointed CEO of Ionic Digital and will oversee Bitcoin mining operations under a four-year management agreement.

Celsius will now focus on orderly winding down its operations and will begin the process of shutting down its mobile and web applications.

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According to data from Arkham Intelligence, between January 8 and 12, Celsius transferred $95.5 million to Coinbase and $29.7 million to FalconX.

However, Celsius still holds more than 550,000 ETH on its books; this number was worth a staggering $1.36 billion at the time of publication.

On January 5, Celsius moved to redeem 206,300 ETH worth $407 million at the time; the lender claimed that the newly released Ether would be used to pay for costs incurred during the restructuring process and to prepare for repayments to creditors.

Celsius has announced that it will distribute Bitcoin and ETH to creditors in its rescue plan, but a specific date on when creditors will begin receiving funds has not yet been announced.

Celsius creditors have been waiting for more than 18 months to receive funds that remained on the platform since the company first filed for bankruptcy in July 2022.

FTX and Alameda Transfer Funds to Exchanges (Celsius)

Celsius was not the only beleaguered firm to move cryptocurrency assets to exchanges recently.

According to data from blockchain analytics platform SpotOnChain, bankrupt cryptocurrency exchange FTX and its defunct trading arm Alameda Research made their own move by transferring $28 million worth of crypto to exchanges on January 14.

The transfers to the Coinbase and Binance exchanges included $18.7 million worth of Wrapped Bitcoin, $8 million worth of Ether, and $1 million worth of Pendle (PENDLE).

After FTX and Alameda Research filed for bankruptcy in November of last year, FTX has been working to raise funds for creditor repayments. FTX executives have successfully recovered approximately $7 billion in assets, including a significant amount of cryptocurrency worth $3.4 billion.

The market has warmed to FTX creditors’ demands; some of them have risen as high as $0.50 per dollar in October of last year, suggesting that creditors have a chance to become whole. While it is unclear when FTX will make repayments to its customers, current plans call for repayments to begin this year.

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Creditors of the bankrupt crypto lender who withdrew large sums from the platform before Celsius filed for bankruptcy may be forced to return some of those funds or face legal action.

On January 9, Celsius bankruptcy administrators filed an intent motion notifying account holders who withdrew more than $100,000 in the 90 days leading up to the date of bankruptcy filing on July 13, 2022 of their obligation to return those amounts.

The motion states that account holders with “withdrawal preference risk” of more than $100,000 who are not excluded parties, did not vote to reject the reorganization plan, and did not waive, may terminate their liability by paying 27.5% of the funds by January 31, 2024.

Those who wish to complete the agreement must submit a selection form indicating their intent by January 25.

Account holders who agree to the deal will be granted immunity from all avoidance actions and distributions under the reorganization plan.

Those who do not agree by the deadline will have their withdrawal preference risks addressed

Those who do not agree by the deadline will have their withdrawal preference risks addressed by the administrators and may be sued to recover the preferences they took.

“Any Withdrawal Preference Risk that is not resolved by January 31, 2024, shall be addressed by the Litigation Manager through Separate Writing or other action after the Effective Date,” the motion states.

In late November 2023, Celsius administrators began allowing eligible participants to withdraw some of their crypto assets.

Celsius has been actively working to withdraw and settle Ethereum for “timely distributions to creditors.” According to Nansen, it currently comprises 20.3% of the withdrawal queue and includes 112,037 Ether worth approximately $266 million.

In November 2023, the firm restructured its post-bankruptcy strategy to focus on Bitcoin mining, and that plan was approved by the judge overseeing the bankruptcy proceedings at the end of December.

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