Key Takeaways
- Judge cited late filing, unrelated amendments, and potential disruption to FTX’s reorganization as reasons for the dismissal
- Celsius argues its initial filings were sufficient to signal potential claims
Bankrupt Celsius Network has filed an appeal challenging a court ruling that dismissed its claims against FTX. The appeal, submitted on December 31 by Celsius’ litigation administrator Mohsin Meghji, contests Judge John T. Dorsey’s decision to disallow both its original $2 billion claim and a revised $444 million claim against the now-defunct cryptocurrency exchange.
Celsius initially alleged that disparaging and unsubstantiated statements made by FTX executives, employees, and affiliates damaged its reputation and financial standing.
As per Celsius, these comments undermined customer confidence in its platform, leading to significant fund withdrawals that contributed to its bankruptcy in July 2022. Based on these allegations, Celsius originally filed a $2 billion claim, arguing that FTX’s actions played a substantial role in accelerating its collapse.
However, FTX rejected these claims, asserting that they were not substantiated by sufficient evidence and fell outside the scope of legitimate bankruptcy claims. After more than a year, Celsius revised its filing in July 2024, significantly lowering the claim to $444 million.
The revised filing shifted the focus from defamation to preferential transfers, arguing that certain payments made to FTX before its bankruptcy unfairly benefited specific creditors at the expense of others. Celsius sought to claw back these payments, claiming they violated bankruptcy rules designed to ensure equitable treatment of creditors.
However, Judge Dorsey dismissed both the original and revised claims, citing multiple procedural deficiencies, including Celsius’ failure to seek prior court approval to amend its filings.
The judge also noted that the amended claims introduced new arguments unrelated to the original claim and were filed too late without a valid explanation for the delay. Additionally, the court determined that allowing the amendments could disrupt FTX’s efforts to reorganize and distribute assets to its creditors.
In response, Celsius argues that its initial filings were sufficient to put FTX on notice of potential avoidance claims, even if they lacked detailed evidence. “Celsius counters that the original proofs of claim were sufficient to put the debtors on notice of alleged avoidance claims, and at a minimum constitute protective proofs of claim sufficient to meet the requirements of the Bankruptcy Code,” one filing stated.
Nonetheless, the court found that Celsius’ original submissions, which only briefly mentioned potential claims, were insufficient to preserve them.
Celsius has repaid approximately $2.53 billion to 250,000 creditors as of August, representing 84% of the assets owed. The embattled firm further announced in November plans to distribute an additional $127 million to creditors from its litigation recovery account.
