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In re Celsius Network LLC

Court
S.D. New York (Bankruptcy)
Jurisdiction
USA
Decided
2023-11-09
AI tool
Unidentified
Outcome
Expert report excluded as unreliable
Monetary penalty
None reported

What was hallucinated

Misrepresented: Other | Report generated by AI contained almost no citations and the expert did not review underlying sources; court found it was not based on sufficient facts or data and excluded the report. || Misrepresented: Exhibits & Submissions | Report asserted features for CEL (e.g., governance rights) that the token never had; court identified this factual inaccuracy as undermining reliability.

Details

The court found the 172-page valuation report was generated by AI at the expert's instruction, contained almost no supporting citations, factual inaccuracies (e.g., asserting governance rights CEL lacked), duplicated text and incorrect trade dates, and relied on a non-peer-reviewed 'fair value' method. The report was excluded under Rule 702.Counsel at fault was later sanctioned both in Texas, and in New York through a reciprocal sanction (see here).

Sanction teardown · S.D. New York (Bankruptcy), USA · 2023-11-09

In re Celsius Network LLC

What happened

In S.D. New York (Bankruptcy), USA, a filing relied on an unnamed/unconfirmed AI tool to help draft legal argument. The court identified the following problems with the citations in that filing:

  • Misrepresented (Other)
    Report generated by AI contained almost no citations and the expert did not review underlying sources; court found it was not based on sufficient facts or data and excluded the report.
  • Misrepresented (Exhibits & Submissions)
    Report asserted features for CEL (e.g., governance rights) that the token never had; court identified this factual inaccuracy as undermining reliability.

Which AI tool

an unnamed/unconfirmed AI tool. Note: Charlotin's public database records tool attribution only where a court order, brief, or reporting on the matter states it explicitly; "unidentified" or "implied" means the record indicates AI use but does not name a specific product — we do not guess.

Outcome

Expert report excluded as unreliable

Additional detail

The court found the 172-page valuation report was generated by AI at the expert's instruction, contained almost no supporting citations, factual inaccuracies (e.g., asserting governance rights CEL lacked), duplicated text and incorrect trade dates, and relied on a non-peer-reviewed 'fair value' method. The report was excluded under Rule 702.Counsel at fault was later sanctioned both in Texas, and in New York through a reciprocal sanction (see here).

How Citation Safe would have caught this

Citation Safe runs three deterministic layers before a brief is filed: (1) does the citation exist against CourtListener's database of published opinions, (2) if quoted, does that exact language appear in the source, (3) does the cited case actually support the proposition it is cited for. Fabricated case citations fail Layer 1. Fabricated or misattributed quotations fail Layer 2 even when the underlying case is real. Misrepresented holdings — a real case cited for a proposition it does not support — are the target of Layer 3. None of these checks involve asking another language model whether the citation looks right; they are lookups and text-matches against the actual source, which is why a hallucinated citation has to survive a direct lookup against the authoritative source — not another model's opinion — to earn a VERIFIED stamp; our measured false-verify rate is published live at /quality.

Check a brief before you file it → · See our live false-verify rate

Source: https://www.damiencharlotin.com/documents/1049/In_re_Celsius_Network_LLC_USA_9_November_2023.pdf, via Damien Charlotin's public AI Hallucination Cases Database (CC0).

Source: https://www.damiencharlotin.com/documents/1049/In_re_Celsius_Network_LLC_USA_9_November_2023.pdf

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