The central theses
- On September 1, Celsius filed for court approval to release $225 million in frozen funds to creditors.
- Now, US Trustee William K. Harrington has objected to that motion, calling it premature.
- Harrington says funds should not be distributed until it is known what Celsius owes to whom.
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A US trustee reporting to the Justice Department has argued in court that Celsius should not be allowed to initiate customer withdrawals pending a fuller investigation.
US trustee protests against Celsius plans
Celsius’ plans to reopen withdrawals could be delayed due to objections from a member of the US Trustee Program, which oversees the administration of bankruptcy cases.
On September 1, Celsius applied for approval to release $225 million from its custody program and hold accounts. Now that request is facing opposition from a member of the US Justice Department’s trustee program.
In a Sept. 30 court filing, US Trustee William K. Harrington disagreed with Celsius’ plans to “reopen withdrawals for certain customers in relation to certain assets” held in custody and withhold accounts.
Harrington called Celsius’ plans to release those funds “premature.” He added that the firm’s request would “distribute funds on impulse” without fully understanding its crypto holdings and inter-account crypto transfers. It would also ignore the relationship between the company’s balance sheet and the cryptocurrency deposited by creditors.
Harrington added that Celsius should not be able to release funds until an auditor’s report is filed. This report will detail if the company mixed funds and why there was a change in its account offerings in April 2022.
Harrington argued that it is impossible to determine how many creditors need to be paid, what crypto assets are owed, and how much is owed.
He then warned that releasing funds “could unintentionally affect or restrict distributions to other creditors.”
In related news, regulators in Texas and Vermont on Thursday objected to Celsius’ plans to sell $23 million worth of stablecoin holdings. Harrington’s file also contradicted this sale.
Celsius initially froze withdrawals on June 12 of this year, then filed for bankruptcy weeks later. These events have left users without access to their cryptos for three months.
While customers might be disappointed that withdrawals could be further delayed, it’s not clear if the US trustee’s appeal will be upheld by the court.
The matter will be discussed at a hearing on October 6.
Disclosure: At the time of writing, the author of this article owned BTC, ETH, and other cryptocurrencies.
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