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Filing Lawsuits Before "Setting Clear Rules" Harms Investors: WSJ on SEC-Ripple Showdown

The Wall Street Journal (WSJ) has weighed in on the ongoing legal showdown between the United States Securities and Exchange Commission (SEC) and blockchain payments firm, Ripple Labs Inc.

Per the WSJ, filing lawsuits before “setting clear rules” often harm currency developers or issuers and by extension, numerous retail investors.

Back in December, the SEC charged Ripple and two of its executives, Brad Garlinghouse and Chris Larsen for engaging in the sales of XRP currency, as security without duly registering it as equity. The two entities have been appearing in court since February 20th, during which time the blockchain firm has worn two small victories against the SEC.

The first entails the granting of access to the Commission’s communications about Bitcoin and Ethereum, with Ripple seeking to uncover why both cryptocurrencies will be classified as a currency and XRP is not. Also, the SEC was denied access to the personal financial records of both Ripple executives, posing another blow to the agency.

The Wall Street Journal noted the impact of the lawsuit on XRP investors as cryptocurrency trading platforms such as Kraken, Binance, and Coinbase who went public last week through a direct listing on the Nasdaq Exchange, delisted XRP from their platforms. This action sent the price of XRP tumbling down and resulted in imminent losses for retail holders.

“The SEC believes bitcoin and ether aren’t securities, in part because their developers don’t profit from their sale. But those exemptions were announced through statements from former SEC Chairman Jay Clayton in 2019 and 2020, with no formal rule-making. The findings by Judge Netburn in the Ripple case suggest that the agency hasn’t set clear rules for which currencies it regulates and which it doesn’t,” the WSJ report reads.

Through his ascension as the new Chairman of the SEC, Gary Gensler has been tapped to help lead the Commission to provide the needed regulatory clarity that will help new digital and fintech innovations thrive, and perhaps, withdraw the lawsuit against Ripple.

Celsius Had Higher Risk Profile Than Average US Bank: WSJ

A recent report from the Wall Street Journal (WSJ) has revealed that embattled crypto lending platform Celsius Network took on more risk than it could naturally handle.

A review of the data sent to investors when it last raised $400 million showed that the company, led by Alex Mashinsky, had a total asset base of $19 billion with its equity contribution pegged at just $1 billion.

From this figure, the WSJ made an analogy that showed Celsius Network’s Asset-to-Equity ratio was more than double the average for all the North American banks in the S&P 1500 Composite index, which is close to 9:1.

With this ratio known as one of the major markers of a highly risky portfolio, Celsius’s outlook was one of a large financial institution with access to the Federal Reserve’s bailout. The obvious unsustainability profile of the firm was pointed out with the halt of transactions earlier this month.

“It’s just a risky structure,” said University of Chicago economist Eric Budish of Celsius to the Wall Street Journal. “It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006,” referring to a feature of the 2008 financial crisis. “It was all housing — here it’s all crypto.“

While Celsius has informed its clients and creditors that it needed more time to figure out the best course of action to bounce back, the restructuring lawyers and Citigroup which the firm tapped to provide informed advice have recommended filing for Chapter 11 Bankruptcy, a move the firm is kicking against.

Unsure how Celsius is going to wriggle out of its current challenges, other similarly embattled players are already exploring viable options. BlockFi recently secured a $250 million credit facility from Sam Bankman-Fried’s FTX exchange, and Three Arrows Capital has been ordered to liquidate its assets by a British Virgin Island court.

Celsius Hires New Lawyers for Restructuring: WSJ

Celsius Network LLC has hired new lawyers to advise the troubled cryptocurrency lender on restructuring, according to a report from the Wall Street Journal (WSJ).

The much-needed restructuring plan has come as it seeks to escape the recent turmoil in crypto markets, the WSJ said, citing people familiar with the matter.

According to the WSJ report, Kirkland & Ellis LLP lawyers have been called on board to advise Celsius on options, including a bankruptcy filing.

The lawyers have replaced the company’s previous lead restructuring counsel, Akin Gump Strauss Hauer & Feld LLP.

Since the company’s stagnation due to the market plunge, it has been in an unstable liquidity position. As part of its recovery efforts, Celsius has also appointed Citigroup to advise it on potential financing options.

The WSJ reported that Celsius is also reshuffling its board as they appointed two new directors last week.

Customers of the company, who reported $11.8 billion in assets in May and 1.7 million users, have not been able to access their Celsius accounts for nearly a month after it froze user withdrawals as crypto prices plunged.

Celsius was looking to avoid lengthy bankruptcy proceedings, The Block reported citing people familiar with the company’s situation.

On June 30, Celsius shared a blog post with the community saying it was continuing to take “important steps to preserve and protect assets and explore options available to us.”

“These options include pursuing strategic transactions as well as a restructuring of our liabilities, among other avenues,” said the post. “These exhaustive explorations are complex and take time, but we want the community to know that our teams are working with experts from many different disciplines.”

Celsius Network Charged Over $3M in Legal Fees

Beleaguered crypto lending platform Celsius Network has incurred more than $3 million in legal fees, according to a filing shared on Friday.

The bankruptcy proceedings, which have been costly for Celsius Network, is an understatement, and per the filing, law firm Kirkland and Ellis is charging the company the sum of $2.6 million in fees for representing it in its bankruptcy proceedings from July 13 and July 31.

The company was also charged the sum of $750,000 in fees by Akin Gump for its services between July 13 and August 31.

These massive legal fees give a peak into the costs being incurred by crypto companies that have gone bankrupt, including Voyager Digital, Babel Finance, Vauld Group, and Zipmex. While the industry is filled with these bankruptcy cases, Celsius Network stands out as it was the first firm to halt withdrawals on its platform.

Alex Mashinsky, the company’s founder and former CEO, and his team allegedly ran the company to bankruptcy, with the Wall Street Journal noting that the firm operated a higher risk profile than most traditional banks did.

At present, Celsius Network has been exploring avenues to repay its creditors following its bankruptcy with as many as $2.8 billion in crypto liabilities. For the company to have an amicable settlement where the restructuring or liquidation is favourable to the majority of its creditors, it will still need to incur the services of experts that can help navigate its restructuring process.

As a flagship bankrupt crypto lending firm, the company is neck deep in its proceedings, and according to reports, it may suffer as much as a $40 million deficit according to projections by Kirkland & Ellis.

The crypto winter has taken out many crypto giants, and what proponents in the space are now looking for now is how the affected companies will bankroll their bankruptcy proceedings with highly cushioned funds.