According To A US Court, Celsius Network Owns The Majority of Customer CryptoCurrency Deposits

January 4 (Reuters) - A bankruptcy court in the United States determined on Wednesday that Celsius Network controls the majority of the bitcoin that consumers placed into its online platform, which means that most Celsius clients would be the last in line for recovery if the crypto lender declares bankruptcy.

The decision by United States Bankruptcy Judge Martin Glenn in New York affects around 600,000 accounts that had assets of $4.2 billion when Celsius filed for bankruptcy in July. Glenn said that the corporation does not have the finances to completely reimburse such deposits.

According to the judgment, most Celsius customers would have a lower priority than customers with non-interest-bearing accounts and other secured creditors. It was unclear if Celsius owed a lot of money.

The Celsius Network

Celsius Network is a cryptocurrency lending and borrowing platform that enables users to earn interest on their digital assets or borrow money using their cryptocurrency as security. The firm was established in 2017 and is based in New York City. It provides a mobile app via which customers may manage their accounts, monitor their investments, and have access to financial services. Celsius Network aspires to create a more equitable financial system that anybody with an internet connection and a smartphone may use.

The Decision To Avoid Customer Uproar

The judgment also forbids customers with interest-bearing accounts from competing for greater priority, preventing a scenario in which some of those customers get returned 100% of their deposits while similarly situated consumers may recover “just a tiny fraction,” according to Glenn. According to Glenn, Celsius' terms of service made it apparent that the crypto lender owned consumer deposits into its interest-bearing Earn accounts. That means Earn customers will be classified as unsecured creditors in Celsius' bankruptcy, and they would be paid last after higher-priority obligations are paid.

Celsius' proposal to claim digital assets was met with opposition from twelve states and the District of Columbia. They said, among other reasons, that it was unclear whether clients understood the terms of service and that Celsius was under investigation in numerous jurisdictions for breaking rules, which might preclude the firm from relying on the terms of service.

According to Glenn, the verdict does not indicate that Earn clients would get “nothing” in the bankruptcy case, nor does it exclude subsequent challenges to Celsius's ownership of the crypto deposits.

According to the judgment, Celsius clients may be able to file fraud or breach of contract charges against the crypto lender, while state authorities may be able to argue that the accountholders' contracts cannot be enforced because they breached state securities rules.

“The Court does not take lightly the implications of this judgment on ordinary persons, many of whom have invested large sums in the Celsius platform,” Glenn said. “During the claims settlement process, creditors will have every chance to receive a thorough hearing on the merits of their arguments.”

The decision allows Celsius to sell nearly $18 million in stablecoins stored in consumers' Earn accounts.

Glenn concluded in December that a very limited set of clients with various types of Celsius accounts were entitled to their deposits during Celsius's bankruptcy. Customers with non-interest-bearing custody accounts whose monies were not commingled with other Celsius assets and whose accounts were too small for Celsius to attempt to claim back to reimburse other customers were exempt from the judgment.

The larger issue of who owns crypto assets is fundamental to other crypto bankruptcy, such as those of crypto lenders Voyager Digital and BlockFi.

Stay tuned for more news.

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