In re Celsius Network LLC (Faraj report)

What happened

In the Chapter 11 case of the cryptocurrency lender Celsius Network, a pro se creditor, Otis Davis, objected to the proposed settlement of claims tied to Celsius's CEL token. He offered a valuation report by Hussein Faraj on the value of the token.

The court's opinion describes how the report was produced: "The Faraj Report was not written by Mr. Faraj. Although Mr. Faraj directed and guided its creation, the 172-page Report, which was generated within 72 hours, was written by artificial intelligence at the instruction of Mr. Faraj." The opinion records that a comparable human-written report would have required more than 1,000 hours. The system used is not identified in the opinion.

What the court did

In a memorandum opinion of November 9, 2023 approving the CEL token settlement, Chief Bankruptcy Judge Martin Glenn excluded the Faraj Report under Rule 702. The opinion gives several reasons. It states that "There were no standards controlling the operation of the artificial intelligence that generated the Report" and that the report "contained numerous errors, ranging from duplicated paragraphs to mistakes in its description of the trading window selected for evaluation." It found that the report "contains almost no citations to facts or data underlying the majority of the methods, facts, and opinions set forth therein." It also found that the "fair value" method Mr. Faraj had developed himself was not peer tested or widely accepted for valuing cryptocurrency.

The court did not exclude the witness. It wrote: "Mr. Faraj's live testimony is admitted, and considered to the extent it sheds light on the relevant questions outlined above."

Where it stands

The court approved the CEL token settlement in the same opinion. No appeal of the evidentiary ruling was located.

The obligation it engaged

The matter engaged Clause 2, non-delegation. The opinion's first finding is that the report was written by a system and not by the expert. An expert report is a statement of the expert's own opinions. When the text is generated at the expert's instruction, the court is left without a way to know which conclusions the expert reached and which the system supplied.

It also engaged Clause 3, independent authority, and Clause 5, reproducible analysis. A report with almost no citations to underlying facts or data cannot be traced back to primary sources, and a method with no controlling standards cannot be re-run by another examiner. The court's decision to admit the live testimony while excluding the document tracks the governing test of the Standard. What the expert could explain in person was received. The generated document, which no competent examiner could reproduce from the sources, was not.

For a practitioner the practical point is the scope of what survived. Mr. Faraj could still be heard, but only on what he could support in person under examination. The time saved by generating 172 pages in 72 hours was lost when the document itself was excluded.

Sources

• U.S. Bankruptcy Court, S.D.N.Y. (via CourtListener) · November 9, 2023
  In re Celsius Network LLC, Memorandum Opinion
• Drug & Device Law · January 2026
  Who Is the "Expert" When Expert Witnesses Use AI?

What could not be confirmed

The AI system Mr. Faraj used is not named in the opinion or in the sources reviewed.