Celsius lenders claim 30% less compensation than promised in bankruptcy

A group of creditors of the crypto-lending firm, which faces more than $3 billion in claims, is complaining of a 30% or more reduction in payments compared to what they were promised in the original bankruptcy plan. The reduction is said to be due to a rule that only 100 Celsius corporate accounts can access broadcasts on the Coinbase exchange.

This law is said to force some lenders to accept payments from crypto. Bitcoin (BTC) and Ether (ETH) rose in value after the distribution was agreed, as small business lenders significantly reduced fees on Celsius 100 trading accounts.

Cointelegraph contacted a Celsius creditor in Australia, who claims to be owed 0.182 BTC and 3.05 ETH under a bankruptcy filing. The creditor, who asked not to be named, said he was told by the Celsius debtors' law firm, Kirkland & Ellis, that they would not accept the principal. Instead, they will receive $15,741 in cash, which is 36 percent less than the cryptocurrencies' market value of $24,552 at the time of publication. In contrast, top-100 Celsius corporate lenders will receive the full amount of the pledged crypto, the lender says.

Lender Cointelegraph provided emails between them and a representative of Kirkland & Ellis. In the emails, the representative seems to confirm that the lender will receive a payment that is not equivalent to the crypto promised. “I understand the frustration that crypto prices have increased since your fiat distribution was secured, but if prices had decreased,” the rep said. [also] Earn more BTC and ETH.

The representative blamed Coinbase's regulations for the reduced fees:

Unfortunately, we only have 100 slots available for corporate creditors, so those slots are allocated to corporate creditors with the largest claims. Corporate lenders that aren't on that list of 100 must accept fiat distributions – if Coinbase doesn't support those distributions, we have no way to distribute cryptocurrency. We have no way of making those distributions without an unregulated distribution partner.

Some creditors have sent letters to U.S. Bankruptcy Judge Martin Glenn, who is presiding over the case, asking for reduced payments. Jake and Sherry Faller, of Oak Park, California, said their fees were going down 26%-33% because of Coinbase's alleged rule, which they said was “unfair.” […] You feel it is unclear and unfair how only 100 corporate accounts are selected to receive crypto distribution, while the rest receive US dollar checks and wires.

Hui Ka Hin, a resident of Hong Kong, complained to Judge Glenn about the decision, saying, “I find myself in a precarious situation where I am forced to accept distributions of US dollars and not crypto (BTH/ETH) as described in the previous document. Hin said it is allowed to distribute crypto in Hong Kong, but for “unknown reasons” Celsius chose to distribute the currency in US dollars.

Celsius loan payment calculation

Celsius' bankruptcy plan was confirmed by the court on November 9. It uses two different crypto values ​​to determine the amount of money owed to creditors. The first set of prices will be determined on the “petition date” or the date Celsius files for bankruptcy, which is July 13, 2022, and the second is the distribution's “effective date,” which is January 31, 2024.

Bitcoin's claim date price is $19,881 and Ether's is $1,088.17. There are also Petition Day prices for other cryptocurrencies such as Dash (DASH), Dogecoin (DOGE), Pax Gold (PAXG), Uniswap (UNI) and all other altcoins carrying Celsius when they stop cashing out.

To determine how much U.S. dollars the lender owes, the lenders add up the demand date value of each cryptocurrency in the lender's Celsius account. The result is the dollar amount paid to creditors. Of this amount, 14.9% will be paid in the shares of Ionic Digital Mining Company, 6.4% will be paid in the “recovery of illegal assets” at a future date and 20.8% will not be paid simply because of Celsius's loss at the time of the petition, according to the plan. That 57.9% will be paid in cash or crypto.

Most lenders are paid in crypto instead of US dollars. This is where the “working day” prices come in.

The price on the day of operation is $42,973 for BTC and $2,577 for ETH. The plan calls for 50% BTC and 50% ETH distribution to most lenders, with 57.9% paid in cash or crypto. To determine how much BTC and ETH they owe to the lender, borrowers divide the dollar amount owed into two halves. The first half is divided by the effective day's Bitcoin price and the second half is divided by the Ether price, which results in the distribution of BTC and ETH amounts.

Related: Celsius distributes $2B crypto to 172k lenders

For example, Celsius lenders who had 1 BTC and 1 ETH in their accounts when the platform stopped operating saw their holdings at $20,969.17 on the day of the complaint. However, the lender will only receive 57.9% of this as cash or crypto payment, or $12,141.15. Half of this is $6,070.58, which is paid as 0.14 BTC. The remaining half is paid as 2.36 ETH. This is an 86% decrease in BTC and a 135% increase in ETH compared to when the lender started.

In dollar terms, 1 BTC and 1 ETH had a combined value of $45,550 on the closing date. This shows that our hypothetical lender has missed out on $33,408.85 in earnings during the ongoing crypto bull market as bankruptcy proceedings wind their way through the court system.

If our hypothetical lender had held a corporate account that was not one of the top-100 assets and was unpaid as of March 13, they could have tied up more of their capital and lost even more profit. On March 13, the price of Bitcoin was $72,665, and the price of ETH was $3,980.40. This means that our hypothetical investor missed out on $64,503.85 or an additional $31,095 over what they could have earned if they had been paid in crypto.

A lender who spoke to Cointelegraph about the matter called it “special treatment for some” and said lenders would never agree to this arrangement. A Kirkland representative responded by saying that the plan had been agreed upon by creditors and that payments would be made in dollars if a compliant distribution partner could not be found. The Coinbase exchange did not comment at the time of publication.

Related: Celsius emerges from bankruptcy, begins paying back more than $3B to creditors