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Celsius Network LLC used customer funds to cover shortfalls in its obligations to pay lofty yields and to prop up the value of its CEL token while some company insiders were cashing out, according to an examiner’s probe into the crypto lender’s practices before its collapse last year, WSJ Pro Bankruptcy reported. Celsius sold customers’ Ethereum and bitcoin to fund purchases of the firm’s proprietary CEL token since it wasn’t earning enough yield through its various investment activities to cover obligations under its flagship customer offering, according to the report by Shoba Pillay, the examiner appointed to probe the firm’s business practices. The increasing price of the CEL token made it possible for Celsius insiders to make millions of dollars selling it before Celsius went bankrupt, the examiner’s report found. Celsius founders Alex Mashinsky and Daniel Leon sold a substantial portion of their holdings of the native digital coins, realizing at least $68.7 million and at least $9.7 million respectively, between 2018 and when Celsius filed for bankruptcy in July, according to Tuesday’s report.

H2 Brands Group, a wholesaler of home and hardware products including fans, humidifiers and paint supplies, said it has filed for bankruptcy due to supply-chain problems, vendor lawsuits and potential liabilities from a deadly 2022 fire in New York City, WSJ Pro Bankruptcy reported. The Cranbury, N.J.-based company, which counts Target Corp., Dollar General Corp. and Family Dollar Stores Inc. among its customers, has total debt of roughly $100 million and plans to sell its assets in chapter 11. Its revenue fell to $256 million last year from $325 million in 2021, according to a document filed Monday in the U.S. Bankruptcy Court in Wilmington, Del. Supply-chain problems have played a role in the company’s financial problems, Chief Executive Mark Rostagno said in a sworn declaration. The amount of time needed to receive products from China has increased more than fourfold to 150 days during the pandemic, H2 Brands said. In response, the company said it placed bigger orders so it wouldn’t be caught short of inventory, increasing its financial obligations. H2 Brands said the cost of ocean containers has risen to an average of $8,800, up from roughly $2,500 before the supply-chain disruptions. The company said it also faces claims related to a fire in a Bronx apartment building that killed 17 people last year, one of the deadliest blazes in New York City in decades. Fire investigators said a space heater distributed by the company was a factor in the fire. H2 Brands has disputed the claims.

On direct appeal, the Third Circuit reversed the bankruptcy court and directed dismissal of the petition filed by LTL Management LLC, the subsidiary of Johnson & Johnson created to file in chapter 11 to deal with talc and asbestos claims arising from the sale of Johnson’s Baby Powder, according to today's edition of Rochelle's Daily Wire. In his 40-page opinion yesterday, Circuit Judge Thomas L. Ambro held that “resort to Chapter 11 is appropriate only for entities facing financial distress.” LTL did not qualify because it has a $61.5 billion backstop from another J&J subsidiary and from the ultimate J&J parent. Judge Ambro said that the parent has $400 billion in equity value, a AAA credit rating, plus $31 billion in cash and marketable securities. He also noted that the parent had distributed $13 billion to shareholders in 2020 and 2021. Judge Ambro pointedly declined to rule on whether LTL improperly used chapter 11 as a “litigation tactic.” Unless the debtor is in “financial distress,” this writer reads the opinion to mean that debtors may not justify the use of chapter 11 by contending that it’s superior to the tort system or multidistrict litigation in federal courts.

Bankrupt crypto lender Celsius Network used investor money and customer deposits to prop up its own token, inflating its balance sheet while two of its founders cashed out millions, a U.S. court-ordered examiner report released today showed, Reuters reported. Crypto lenders such as Celsius boomed during the COVID-19 pandemic, drawing depositors with high interest rates and easy access to loans. New Jersey-based Celsius filed for U.S. bankruptcy in July last year, after freezing customer withdrawals from its platform. Bankruptcy Judge Martin Glenn, who is overseeing the chapter 11 case, appointed former prosecutor Shoba Pillay as an independent examiner in September. She was tasked with investigating accusations by Celsius customers that the company operated as a Ponzi scheme and also with reporting on its handling of cryptocurrency deposits.

FTX founder Sam Bankman-Fried attempted to stall bankruptcy proceedings in the U.S. in November in order to transfer assets from his crypto exchange to foreign regulators, the Justice Department alleged in a filing Monday, the Wall Street Journal reported. Bankman-Fried hoped foreign regulators would treat him leniently and eventually allow him to regain control of FTX, according to federal prosecutors. FTX’s lawyers wanted to secure the assets for bankruptcy at the time he was trying to move the money, the prosecutors said. He made the statements to Gary Wang, an FTX co-founder and the former chief technology officer, the filing said. Wang pleaded guilty to federal fraud charges and is cooperating with prosecutors. The Manhattan U.S. attorney’s office charged Mr. Bankman-Fried last month with stealing billions of dollars from FTX customers and misleading investors. He pleaded not guilty and was released on a $250 million bond. He is currently under court-ordered confinement in his parents’ Palo Alto, Calif., home. Last week, Bankman-Fried’s lawyers asked a judge to remove bail conditions that prohibit him from accessing assets held by FTX and his investment firm Alameda. Bankman-Fried’s alleged misuse of FTX and Almeda funds in November were a reason for denying his lawyer’s request, prosecutors said in the Monday filing.

BlockFi Inc. won bankruptcy court approval to set up an auction for the crypto lender’s digital coin mining business, Reuters reported. The company wants to get bids in as quickly as possible to take advantage of current market conditions, BlockFi lawyer Francis Petrie said during a video court hearing Monday morning. The company has already gotten some initial bids for various assets and expects more, Petrie told U.S. Bankruptcy Judge Michael Kaplan. “We’ve received substantial interest in the market for bidding purposes and current volatility in the cryptocurrency market, which means we need to act quickly,” Petrie said. BlockFi is selling computer equipment used for mining digital coins at a time when the crypto mining business is on the upswing. Last week, another bankrupt crypto platform, Celsius Network, said it’s aiming to sell tens of thousands of mining machines. Bids for the mining assets are due Feb. 20 and an auction will be held about one week later, Petrie said. The company will return to court in March for approval of any proposed deal that comes out of the auction.

Sen. Elizabeth Warren (D-Mass.) and Senate Finance Committee chairman Ron Wyden (D-Oregon) are asking the Public Company Accounting Oversight Board to do more to regulate the audits of cryptocurrency companies in the wake of recent high-profile bankruptcies of companies like FTX, AccountingToday.com reported. In a letter Wednesday to PCAOB chair Erica Williams, they pointed to the "sham audits" touted by crypto companies. They pointed to the limited audits provided by firms like Prager Metis and Armanino for FTX prior to its collapse, and the insufficient "proof of reserve" examinations offered by other firms. "The ongoing reports of scandalous accounting practices in the crypto industry raise questions about crypto accounting firms' independence and the methods they employed to assess the integrity of crypto firms' financial statements, underscoring the need for the Public Company Accounting Oversight Board to act to ensure accountability," Warren and Wyden wrote. "When PCAOB-registered auditors perform sham audits — even for firms that may lay outside of the PCAOB's jurisdiction — they tarnish the credibility of the PCAOB and undermine confidence in the PCAOB-registered auditors that investors and the public rely on when making investment decisions."

A Roman Catholic diocese on Long Island, New York, proposed a bankruptcy plan on Friday, moving to retake control of its chapter 11 case after a committee representing sexual abuse victims filed a competing restructuring proposal, Reuters reported. The Diocese of Rockville Centre, one of the largest in the United States, said in a statement Friday that the proposed aggregate payment and the payment each abuse victim would receive under its proposed plan are "well in excess of any other Diocesan chapter 11 plan in history." The diocese filed for chapter 11 bankruptcy in New York in October 2020, citing the cost of lawsuits filed by childhood victims of clergy sexual abuse. The state’s Child Victims Act, which took effect in August 2020, temporarily enabled victims of child sexual abuse to file lawsuits over decades-old crimes. The diocese's efforts to reach a comprehensive settlement with more than 600 sexual abuse claimants stalled over its two years in bankruptcy. The breakdown in discussions caused the official committee that represents creditors, including abuse victims, in a rare move to propose a restructuring plan without input from the diocese on January 19. The committee's plan would require the diocese to pay $41 million to abuse victims, plus additional payments from the sale of property and future insurance proceeds. Parishes and other non-bankrupt affiliates could opt into the settlement for an aggregate $200 million contribution.

A senior Commodity Futures Trading Commission official says the agency needs the power to approve or reject an unregulated company’s acquisition of a derivatives exchange, Bloomberg News reported. The planned sale of crypto derivatives exchange LedgerX, a solvent piece of Sam Bankman-Fried’s collapsed FTX empire, has raised concerns about the CFTC’s authority over these acquisitions. LedgerX and other parts of the business are being auctioned off as part of the FTX bankruptcy proceedings. CFTC Commissioner Kristin Johnson, a Democrat, is calling for Congress to give the regulator the power to nix or give the nod on such purchases. Otherwise, it’s left largely in the dark about companies that could easily enter U.S. markets through buyouts, she said. “It’s imperative that we as a regulator are in dialogue and open communication with them,” Johnson said in an interview Friday on “Bloomberg Markets: The Close.” “As of now, we have no approval authority with respect to any element or the acquisition of LedgerX.” Initial bids for LedgerX were due Jan. 25, with a final auction scheduled for March 7. Bidders haven’t been publicly disclosed.