Dive Brief:

• Attorneys for investors in cryptocurrency firm Celsius Network filed an objection with the U.S. Bankruptcy Court Southern District of New York to the company’s bid to hire former CFO Rod Bolger to advise the firm on its Chapter 11 bankruptcy proceedings. Legal counsel for Celsius filed a motion to have Bolger step in to act as an advisor July 25.
• The filing Tuesday alleges both that Celsius give “little detail” for why Bolger’s services are necessary to the proceedings beyond his familiarity with the company’s operations, and that Bolger provided false information concerning Celsius’ liquidity to depositors before the cryptocurrency exchange paused all withdrawals and transfers on June 12.
• “Just saying that he led the company through turbulent times and that he's familiar with the operations and this justifies his retention, reflects a level of callous indifference to the customers of Celsius,” David Adler, partner at law firm McCarter & English, LLP, who filed the objection on behalf of some investors said in an interview.

Dive Insight:

Celsius last month filed a motion proposing to hire Bolger to act in an advisory capacity for a six week period ending Sept. 16. The proposal stated Bolger was to be paid a monthly fee of approximately $92,000 ($120,000 CAD) for such services. A hearing to review the motion is set for Aug. 8. Celsius’s motion was filed by attorneys from Kirkland & Ellis LLP.

Bolger served as CFO for the cryptocurrency firm for less than six months, informing the company of his plan to depart June 30. He received an annual base salary of $750,000 during his time at Celsius’ financial helm, according to his employment agreement, a salary he would continue to receive up to eight weeks after his departure provided he had previously given the company eight weeks written notice.

This could mean Bolger will potentially be receiving both his severance of about $62,500 per month as well as the $92,000 monthly payment from the firm in the period between July 18 and Aug. 25.

Bolger’s familiarity with the firm’s operations therefore provides a thin justification for bringing him in to act as an advisor, especially at such a price tag, Adler said — the company is not generating new income, having paused all withdrawals and transfers in June.

It also reported a $1.8 billion gap on its balance sheet, listing $5.5 billion in liabilities with total assets standing at $4.3 billion. Approximately $4.7 billion is owed to Celsius customers, many of which are not accredited investors.

“They're shut down for all intents and purposes, and you have to ask yourself, why can't the current CFO handle this?” Adler said. “Why do they need [Bolger] back? Why do they need to give him a raise?”

Current Celsius CFO Chris Ferraro — a 17-year veteran of JPMorgan Chase — took the financial helm at the cryptocurrency company July 11.

As well as raising questions regarding Bolger’s compensation, the Aug. 2 filing also alleges the former CFO may have misrepresented the company’s liquidity. The filing references an article published June 8 — four days prior to the company’s pause of all trades and withdrawals — on the Celsius blog entitled Get to Know Rod Bolger, Chief Financial Officer, Celsius, and argues Bolger “misstated the financial condition and liquidity of the Debtors” within the article.

Bolger stated within the blog post that the company’s “strong liquidity framework, established practices around liquidity data, and modeling were elements that I was happy to find similar to other large financial institutions. This put us in a strong position to weather the recent market turbulence and ensure that clients who needed to access their digital assets could get them free and clear.” 

“By virtue of the June 8th Article, it appears that Mr. Bolger was not well informed about the financial condition of the Debtors or intentionally misled the depositors/investors of Celsius,” the Aug. 2 filing reads. “Thus, the justification that Mr. Bolger services are required ‘to steady the business, [and] guide] the financial aspects of the business’ rings hollow especially given the fact that under his leadership a $1.8 billion hole in the Debtors’ balance sheet emerged — not to mention the lives of thousands of individuals that have been destroyed as a result.”

Letters to Judge Martin Glenn of the Southern District Court by former Celsius users with current frozen assets have poured into the court, with many describing the loss of retirement or lifetime savings which were transferred to the platform prior to the June 12 freeze. Many such letters point to statements and tweets made about the stability of the Celsius platform by company CEO Alex Mashinsky, who routinely made comments in interviews regarding the relative security of Celsius as opposed to traditional banks.

“Gradually, after becoming a trusted follower of Mr. Mashinsky and Celsius Network, I decided to move a substantial part of my investment/retirement into Celsius,” one letter reads. “As a result, my trust in Celsius and Mr. Mashinsky has pushed my retirement savings a decade behind. Mr. Mashinsky statements were clearly pushing Celsius Products as stable fixed income, and always talked down on the banks and financial institutions. He clearly manipulated investors.”

Celsius did not respond to requests for comment. Kirkland did not immediately respond to requests for comment.