Calling it a “a defining moment,” embattled crypto lender Celsius Networks has filed for Chapter 11 bankruptcy protection.
In a statement late Wednesday, Celsius co-founder and Chief Executive Alex Mashinsky said the filing in U.S. Bankruptcy Court for the Southern District of New York “is the right decision for our community and company.”
“I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company,” he said.
New Jersey-based Celsius froze all user withdrawals and transfers about a month ago, citing “extreme market conditions” as the crypto market plunged. The company said at the time that bankruptcy was an option and that it was also looking at restructuring its debts.
The company defended that “difficult but necessary” pause in withdrawals in its filing Wednesday. “Without a pause, the acceleration of withdrawals would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”
Celsius said it has $167 million in cash on hand, which will provide liquidity as it continues to operate during the restructuring process.
Following Celsius, a number of other crypto lending platforms also froze withdrawals due to the crypto crash, including Babel Finance and CoinFlex, while digital-asset broker Voyager filed for Chapter 11 in New York last week, and crypto hedge fund Three Arrows Capital filed for bankruptcy and was ordered to liquidate in recent weeks.
Earlier this month, the former head of Celsius’ key investment strategy sued, claiming Celsius operated as “a Ponzi scheme” and used investor deposits to cover massive liabilities.
“Celsius grossly mismanaged its customer funds, failed to perform basic internal auditing to account for its obligations, and manipulated crypto-assets to the benefit of itself and its principals,” the lawsuit alleged.
On Sunday, the Wall Street Journal reported Celsius had hired new lawyers for restructuring advice, including a potential bankruptcy option.
The company reported $11.8 billion in assets in May, with about 1.7 million users.
Cryptocurrency prices have tumbled this year, with bitcoin BTCUSD, +2.86% off about 50% over the past three months — and down 57% year to date — while ethereum ETHUSD, +3.13% is down 63% over the past three months, and off 70% in 2022.