One successful businessman invested $1.5 million in Bitcoin on the popular site Celsius in exchange for $350,000 in cash. Once the $350,000 loan was repaid, Celsius would return the $1.5 million in Bitcoin. By then, Celsius could have earned a profit on the accrued value of Bitcoin. Instead, Celsius raided their company coffers, failed to keep accurate records, and ended up defaulting on a loan that threw the entire crypto market into turmoil.
Today, investors have nearly $1 billion in assets that have been frozen as Celsius navigates bankruptcy. Celsius is now holding onto the cryptocurrency and will not dispense it even after an individual has repaid their loan. This makes it less likely that individuals will repay their loans. At this point, Celsius is selling off assets to make investors whole. But it remains unclear whether Celsius will ever again have enough assets to repay investors.
As of now, crypto investors are hoping that Celsius will be able to sell off its loans so that they can pay off their loans and regain access to their investments. It would be a bit like paying off your mortgage only to be kicked out of your house immediately thereafter. Celsius claims that the collateral bitcoin belongs to them and not their investors.
Does This Constitute Fraud?
A determination as to whether or not Celsius committed fraud is not relevant to this bankruptcy case. While it’s true that you personally can never discharge a debt incurred by fraud, the same does not hold true for companies in Chapter 11. Individuals who file under Chapter 11 are also subject to the no-fraud clause. Companies are not.
The rules of the law are taken quite literally. In this case, the law refers to individuals and not companies. That means that the fraud exception is only applied to individuals and not companies.
Corporate personhood is a real thing. Corporations can be treated as individuals under the law. However, they are not uniformly treated as individuals. In the case of bankruptcy, a company is not considered an individual. An individual may commit fraud on behalf of a company or even against a company. However, a company employs hundreds or thousands of individuals who will all suffer because of the judgment of one or two people acting on behalf of the company. Hence, the company is separated from the criminal conduct and allowed to discharge the judgment in bankruptcy.
Celsius stands accused of failing to disclose key information under the Truth In Lending Act (TILA). Later, Celsius attempted to retroactively comply with the statute, but by then, the company was already headed toward bankruptcy. Further allegations accuse the company of not keeping accurate records and creating a “synthetic short,” which occurs when the company’s assets and liabilities do not match.
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Chris Arrington represents debtors in Pennsylvania bankruptcies. Call today to discuss your situation, and we can begin going over your options immediately.