Celsius Network appeals $2B disparagement claim rejection against FTX

Celsius Network filed a notice of appeal on Dec. 31, contesting Judge John Dorsey’s decision to disallow the bankrupt crypto lender’s $2 billion disparagement claim against defunct crypto exchange FTX.

The appeal, now slated for review in the District Court, marks the latest development in the ongoing legal confrontation between the two embattled crypto firms.

Allegations of disparagement

The appeal stems from Celsius’ assertions that defamatory statements made by FTX executives, employees, and affiliates negatively impacted the company’s reputation and financial health, allegedly accelerating its bankruptcy in July 2022.

Celsius contended that FTX’s public comments reduced confidence in its services, driving customers to withdraw funds and ultimately pushing the platform toward insolvency.

According to court filings, Celsius initially filed a $2 billion claim citing “unsubstantiated and disparaging statements” circulated by FTX insiders. However, FTX resisted the claim, arguing that Celsius’ assertions lacked sufficient evidence and fell outside the scope of bankruptcy claims.

Amended claim

In December, more than a year after the initial claim, Celsius amended its filing, reducing the requested amount to $444 million. This revised claim shifted focus to preferential transfers, alleging that certain payments made to FTX prior to its bankruptcy should be clawed back.

However, Judge Dorsey disallowed both the original and amended claims, citing procedural deficiencies.

The ruling highlighted that Celsius failed to seek court approval for the late amendment, ultimately sustaining FTX’s objection. Dorsey’s conclusion emphasized that the amended claim could not bypass procedural requirements, regardless of the substantive nature of the allegations.

The case highlights the fierce legal battles erupting across the crypto sector as firms embroiled in bankruptcy proceedings attempt to recover assets and mitigate losses. Celsius’ pursuit of claims against FTX reflects a broader pattern of creditors and counterparties vying for leverage in ongoing bankruptcy negotiations.