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There is no end in sight for the embattled crypto lender’s case, as the judge handling its bankruptcy probe has issued new orders to examine further whether the platform operates a Ponzi scheme.

Customers Accused Celsius Of Fraud

The order from the federal judge is in response to allegations of fraud by the firm’s customers. Customers allege that Celsius utilized the assets of new users to pay yields and process withdrawals for existing users.

As a result, the customers believe that Celsius’s actions fit the definition of a Ponzi scheme. Thus, the presiding judge directed the examiner and the committee of Celsius creditors to lead the probe to determine whether the company acted illegally.

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On September 9, 2022, the judge appointed an independent examiner to assess all Celsius business deals following increased calls for transparency in its operations. Some of the issues that need thorough examination are Celsius’ tax payment plans and why it transferred some of its customers to different accounts.

Furthermore, this is not the first time the company has been labeled a Ponzi scheme. The decentralized finance (DeFi) platform KeyFi previously sued Celsius on July 7, calling it a Ponzi.

Celsius’ Bankruptcy Journey

On July 13, 2022, Celsius filed a Chapter 11 bankruptcy claim, citing the crypto market crash and poor revenue as the reason for its decision. Since then, the case has continued to be in the court system.

Martin Glenn, the Federal Judge, on November 1, told the troubled crypto lender that it should have included more details in its October 11 motion. The judge wants Celsius to pay its 62 employees almost $3 million as part of the employee retention plan (KERP).

The judge also expressed his surprise at the redaction, where Celsius tried to downplay its employees’ settlement plan.

However, the U.S. Trustee opposed the KERP motion on October 27, citing the lack of ample metrics to identify such expensive bonuses for the affected employees. It also argues that the

The motion restricted some parties from questioning whether some participants were eligible for the KERP. In another development, lawyers in the bankruptcy case previously admitted that Celsius customers should buckle up for a bumpier ride due to the long-drawn-out legal process.

The attorneys noted that bankruptcy cases favor secured and unsecured creditors and equity holders.

According to a business analyst, Daniel Gwen, Celsius may have viewed customers’ deposits as a transfer of ownership and not a custodial agreement. Gwen noted that the current case would classify all Celsius customers as unsecured creditors.

Elsewhere, Celsius lawyers believe that users have no case against the network. On the contrary, according to the lawyers, since users agreed to the Terms of Service issued by the firm, they have given Celsius the right to do what they feel is best with their crypto funds.

Nevertheless, the present situation is difficult for platform users and may mean the end of their funds.

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George Ward

By George Ward

George Ward is a crypto journalist and market analyst at Herald Sheets, known for his engaging articles on the latest digital currency trends. With a background in finance and journalism, he presents complex topics accessibly. George holds a degree in Business and Finance from the University of Cambridge.