The liquidation trust for cryptocurrency lender Cred sued Uphold Friday, alleging that the cryptoexchange masterminded the product that ultimately caused Cred to seek bankruptcy protection in 2020, Coindesk.com reported. That product, CredEarn, offered retail investors high yields until the investments Cred made with depositor money soured. Although not as high-profile, Cred’s bankruptcy case holds a number of parallels to those of Celsius and Voyager, two cryptoinvestment platforms that filed for chapter 11 protection this month. The drama surrounding Cred’s bankruptcy – who is to blame, whether and how depositors are to be repaid – may provide insight into how these more recent cases could play out. The Cred case is also a reminder that centralized financial intermediaries have, for years, been drawing investors into the "decentralized” world of cryptocurrency through flashy marketing and seemingly too-good-to-be-true promises of high interest rates. These past few months are not the first time that the risks of what one might call CeDeFi – centralized decentralized finance – have been laid bare for consumers (and regulators) to see. Cred’s liquidators are seeking at least $783 million in damages in the case filed in the U.S. Bankruptcy Court for the District of Delaware.
Revlon Inc. is facing pushback to its proposed $1.4 billion bankruptcy loan, with its official creditors’ committee opposing the loan and calling the cosmetic company’s case a “mess” in a Wednesday court filing, Reuters reported. The bankruptcy financing would hand too much power to a coalition of lenders, which hold about half of the company’s $3.5 billion debt, at a time of great uncertainty about the company’s future and who should control it, the creditors’ committee said in a filing in the U.S. Bankruptcy Court for the Southern District of New York. "No one today knows what Revlon is worth," and the lender coalition's proposed financing is an effort to "seize the company before its value has been determined," the committee wrote. Revlon filed for chapter 11 in June, saying its high debt load left it too cash-poor to make timely payments to critical vendors in its cosmetics supply chain. It began its bankruptcy case by borrowing $375 million from the lender coalition, and it will seek approval of the rest of the loan at a bankruptcy hearing next week before U.S. Bankruptcy Judge David Jones. The lender coalition, known as the BrandCo Lenders, includes private-equity and hedge funds such as Ares Management and Oak Hill Advisors. The creditors’ committee argued in Wednesday's filing that the same lender coalition had already “fleeced” other Revlon creditors in a 2020 transaction that allowed Revlon to take on more debt while transferring its brands and intellectual property assets to a different Revlon subsidiary.
Celsius Network LLC has a roughly $1.2 billion hole in its balance sheet, with the majority of its liabilities owed to the cryptocurrency lender’s users, according to a Thursday filing by Chief Executive Alex Mashinsky, WSJ Pro Bankruptcy reported. Of Celsius’s $5.5 billion in total liabilities, more than $4.7 billion is owed to Celsius’s users, according to the declaration Mr. Mashinsky submitted to bankruptcy court. Users deposited their cryptocurrencies on the platform in exchange for high yields, and Celsius lent out and invested user deposits. Celsius stopped all customer withdrawals a month before it filed for bankruptcy, finding that as the value of cryptocurrencies collapsed, it would be detrimental to the business to allow the withdrawals to continue as normal, according to Mr. Mashinsky. Celsius’s terms of use raise questions about whether users may be able to recover their cryptocurrency deposits or collateral. Mr. Mashinsky said the basis of the contract between Celsius and its users explicitly stated that the company has ownership rights over customer deposits, as well as the right to lend, sell, transfer or use them for any period of time.
A group of Revlon Inc. stockholders says shares of Ron Perelman’s bankrupt beauty supply company are in the money and that minority owners deserve a greater voice in its chapter 11 case, WSJ Pro Bankruptcy reported. Shareholders asked government lawyers on Tuesday to appoint an official committee to represent equity holders’ interests in Revlon’s chapter 11 case, pointing to the unexpected rally in its stock price after it filed for bankruptcy last month. The elevated stock price suggests that shareholders “are poised to retain material value at the conclusion of Revlon’s bankruptcy,” according to the group’s letter, sent on Tuesday to the Office of the U.S. Trustee, the Justice Department’s bankruptcy division. Mr. Perelman, who bought Revlon in 1985, owns roughly 85% of the company. Individual investors have been piling into the remaining shares, betting they won’t be wiped out, as usually happens in corporate bankruptcies. The minority shareholder group, represented by law firm White & Case LLP, filed its request for official-committee status ahead of a court hearing next week at which it hopes to participate, the letter said.
Former Rep. Katie Hill (D-Calif.), who owes hundreds of thousands of dollars to media parties she unsuccessfully sued over the publication of salacious pictures while she was in office, has filed for bankruptcy, the Los Angeles Times reported. If successful, the move could allow Hill to avoid paying attorneys’ fees to the defendants, including a conservative website, a British tabloid and two journalists. The financial judgments were rendered in 2021 after a judge dismissed her lawsuit accusing multiple parties of distributing and publishing intimate pictures of Hill without her consent. The suit received national scrutiny because it pitted California’s “revenge porn” law against the 1st Amendment. Hill’s attorney said her client is the victim in the case and had no choice other than to file for bankruptcy because of the ruling’s financial toll. Hill said she does not regret filing the suit and called for a federal revenge porn law.
Court-appointed liquidators for cryptocurrency hedge fund Three Arrows Capital Ltd. said its founders can’t be located and aren’t cooperating in the investigation of its assets, allegations that the founders denied, WSJ Pro Bankruptcy reported. Liquidators installed to take charge of Three Arrows and protect its assets said in court filings last week that founders Su Zhu and Kyle Davies haven’t offered any meaningful cooperation with their investigation. Since then, the founders turned over only a “pro forma” disclosure of corporate assets that lacked bank account and other key information, the liquidators’ lawyer, Adam Goldberg, said in a court hearing Tuesday. “We don’t know where they’re located, today,” Mr. Goldberg said. In a statement to the Wall Street Journal, Zhu and Davies denied the allegation that they haven’t cooperated, given that they applied for the liquidation of the hedge fund themselves in the British Virgin Islands. Zhu and Davies said they have cooperated through Three Arrows’ former lawyers at Solitaire LLP and now through their personal lawyers at Advocatus Law LLP. Three Arrows’ collapse during the recent rout in cryptocurrencies has rippled out, causing problems for crypto firms that lent to it. Voyager Digital Ltd., a crypto lender that extended roughly $650 million in credit to Three Arrows, filed for chapter 11 protection last week when the uncollateralized loan went bad. A BVI court ordered the liquidation of Three Arrows and appointed the liquidators, who then petitioned for bankruptcy protection in New York to stay any collection efforts by creditors in the U.S. Other crypto firms also have exposure to Three Arrows, Mr. Goldberg said Tuesday. Read more.
In related news, liquidators for crypto hedge fund Three Arrows Capital (3AC) obtained U.S. court permission on Tuesday to issue subpoenas and lay claim to the bankrupt Singapore-based company's assets, noting that 3AC's missing-in-action founders no longer control its accounts, Reuters reported. U.S. Bankruptcy Judge Martin Glenn in Manhattan gave the liquidators authority to claim 3AC's U.S.-based assets and issue subpoenas to its founders and about two dozen banks and cryptocurrency exchanges that may have information about its assets and transfers. Adam Goldberg, a lawyer for the liquidators, said at an emergency hearing yesterday before Judge Glenn that the whereabouts of company founders Zhu Su and Kyle Livingstone Davies remain unknown. Without the founders' cooperation, the liquidators have been unable to get a complete view of 3AC's assets and their location, Goldberg said. The assets' digital nature creates a real risk that the founders or other parties will whisk them away unless stopped by a court order, he said. Zhu and Davies did not appear in bankruptcy court and did not oppose the liquidators' request for subpoena authority. Zhu tweeted for the first time in almost a month on Tuesday, saying the liquidators had rebuffed their good faith offer to cooperate. Read more. Read more.
Endo International PLC is moving toward a bankruptcy filing, potentially setting off intense conflicts with state and local governments that have sued the pharmaceuticals company for its alleged role in fueling the opioid crisis, WSJ Pro Bankruptcy reported. Without a deal with opioid plaintiffs after years of negotiations, Endo is considering filing for bankruptcy as a means to restructure its more than $8 billion of debt and thousands of outstanding lawsuits. The company has been in negotiations with a group of secured creditors since it failed to make interest payments owed to its junior bondholders last month, said the people. Endo is aiming to reach a deal with the secured creditors before it enters a near-term chapter 11 process, though is unlikely to file for bankruptcy with an agreement also in place with its junior bondholders and opioid plaintiffs, the people said, cautioning that the situation is fluid and circumstances may change. Other pharmaceutical companies, including Purdue Pharma LP and Mallinckrodt PLC, have sought bankruptcy protection to resolve opioid liabilities, filing for chapter 11 with settlements in place with most U.S. states.
