Bankruptcy Judge Rules Celsius Network Has User-Bearing Crypto Accounts TechCrunch

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A federal bankruptcy judge has ruled that cryptocurrencies deposited in interest-bearing accounts at Celsius Network, a now bankrupt cryptocurrency lending platform, in fact belong to the company thanks to the fine print.

The verdict gives Celsius ownership of the $4.2 billion worth of cryptocurrency users deposited into its high-interest Earn program, according to a 45-page filing in New York’s U.S. Bankruptcy Court Southern District on Wednesday.

With the Earn program, Celsius allowed users to deposit cryptocurrencies like bitcoin, ether, and tether and receive weekly interest payments. Depending on the time horizon and the token, the platform offered up to 18% interest per annum.

Celsius had about 600,000 accounts in its Earn program, and the accounts had a collective value of about $4.2 billion as of July 10, 2022, the filing said. About $23 million of that was made up of stablecoins. But all of that now belongs to the estate, aka Celsius, the judge ruled.

Thanks to Celsius’s unambiguous terms and conditions, all cryptocurrency assets, including stablecoins that were deposited into Earn accounts, became the property of Celsius, the filing states.

Celsius, which was once one of the largest crypto lenders in the world, filed for bankruptcy in mid-July 2022. At the time, Celsius said it had between 1 billion and 10 billion dollars of assets and liabilities and over 100,000 creditors.

Before filing for bankruptcy, Celsius froze withdrawals for customers in June citing extreme market conditions. This freeze has never been lifted. Now, the crypto assets held in those accounts are the property of Celsius, the judge said.

The move stands in stark contrast to the argument that thousands of Celsius clients have had claiming that their deposited funds were, in fact, their own. Last month, Celsius fought with clients in court over ownership of the deposited funds, as he wanted to sell around $18 million worth of stablecoins from Earn accounts to fund his organization. Now Celsius can sell these assets.

And for those looking to challenge the court’s decision and get their funds back, that seems unlikely because there simply won’t be enough value available to fully reimburse all account holders, the filing says.

In bankruptcy proceedings, priority for receiving frozen funds is often given to secured creditors. But the filing considers account holders with the Earn program to be unsecured creditors of Celsius, meaning their recovery depends on distributions to unsecured creditors under a Chapter 11 bankruptcy plan.

If only certain account holders prevail with their arguments that they own the cryptocurrency assets in their accounts, they expect to recover 100% of their claims, while most account holders remain unsecured creditors and cannot recover. only a small percentage of their claims. .

Going forward, this verdict may set a precedent for investors in the crypto industry and what their terms of service really mean for people depositing on platforms. It could also indicate what could happen with other Chapter 11 bankruptcy proceedings taking place in the crypto space like FTX, Voyager, and BlockFi, to name a few.

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