Judge Denies Celsius’ Motion to Pay Employees $3M in Retention Bonuses – At Least Temporarily

A federal bankruptcy judge struck down Celsius Network’s plans to pay out nearly $3 million in retention bonuses to a select group of employees on Tuesday, citing the lack of transparency in the bankrupt crypto lender’s public filings.

In a motion filed on October 11, lawyers for Celsius asked Judge Martin Glenn, the judge overseeing Celsius’ bankruptcy proceedings, to approve the company’s “key employee retention plan” (KERP). The plan, which Celsius’ lawyers claimed was necessary to keep the company’s employees from jumping ship to other crypto platforms, would divide the approximately $3 million in requested funds into cash bonuses for 62 of the company’s current 274 employees.

In addition to preventing “brain drain” at Celsius (to which Celsius claims to have lost 102 employees since the beginning of the bankruptcy process), lawyers also argued the KERP plan was necessary to compensate employees who had been promised a payout in the company’s native CEL token – a practice that has been halted and is now being investigated by various state regulators.

During Tuesday’s three-hour hearing, the judge did not seem to take issue with the contents of the KERP itself (which has also been approved by the unsecured creditors’ committee), but was bewildered and irritated by a second motion filed by Celsius’ lawyers on Oct. 11 seeking to file most of the details of the KERP under seal, including the plan participants’ “job titles, job descriptions, supervisors, hiring personnel, corresponding salaries and proposed KERP award.”

“I’m telling you, I was shocked when I saw the redactions. I’ve never seen anyone try to redact everything. That’s not going to happen in this case,” Glenn said. “Everything is blacked out – you’ve got to be joking.”

The judge sided with representatives from the U.S. Trustee’s Office, who argued in their own motion to deny the KERP that the opaque nature of the plan meant creditors and other interested parties would not be able to determine the identities of the KERP participants – and whether they were, in fact, eligible for a roughly $50,000 payout.

U.S. Trustee Shara Cornell also pointed out to the court that Celsius paid international consulting firm Willis Towers Watson $225,000 to perform the KERP analysis.

“Without a sufficient public record, I’m not prepared to go forward,” Glenn said. “I want anyone looking at the record to be able to see that the proposed awards are reasonable in relation to the current salary ranges of different categories of people.”

“I do believe there’s a basis for approving a KERP in this case,” he said, “but it hasn’t been made out.”

All eyes on the independent examiner

Motions addressing the scope of the investigation into Celsius to be conducted by the recently appointed independent examiner – Shoba Pillay of law firm Jenner & Block – were also on the table during Tuesday’s hearing.

On Oct. 18, Pillay filed a motion requesting that Glenn agree to widen the scope of her investigation to account for concerns raised by hundreds of Celsius investors who have filed letters and motions with the court.

Pillay wrote in her motion that Celsius’ use of CEL tokens – particularly how and why other crypto assets were converted into CEL tokens and how they were marketed, stored and traded – was concerning for many of its unsecured creditors, as were “the representations [Celsius] generally made in public representations to customers to attract them to their platform.”

While several pro se creditors at the hearing urged the judge to approve Pillay’s motion to expand the scope of her investigation, a representative for the unsecured creditors committee (UCC) pushed back.

Gregory Pesce, an attorney from White & Case representing the UCC, told the judge that the subjects Pillay was proposing to investigate, including the potential misuse of CEL tokens, were already under investigation by dozens of state regulators.

“It’s really inappropriate, in our view, to have [unsecured creditors] subsidizing that work,” Pesce said.

Glenn, however, disagreed, arguing that allowing Pillay to spearhead the investigation into Celsius’ conduct – including whether or not it engaged in Ponzi-like behavior – was more efficient for all involved.

“For now, at least, we’re happy to allow the examiner to pursue this investigation. If she can’t, [Celsius] is going to wind up with subpoenas from 30, 40, 50 state regulators, the [U.S. Securities and Exchange Commission] ... and the cost to the estate will be substantially higher.”

Several state regulators, including representatives from Texas, Vermont and Wisconsin told the judge they supported the motion to expand Pillay’s scope of investigation.

“Sometimes sunlight is the best disinfectant,” Layla Milligan, a representative of the Texas State Securities Board, told the court. “More information provided by a party that is not subjected to a constituency would be helpful to everyone.”