- A judge has ruled that funds on Celsius’ Earn platform belong to the company and not users
- Judge Glenn ruled that users had consented to their funds being transferred to Celsius during signup
- The ruling means that Celsius now has $4.2 billion in crypto holdings to work with
A bankruptcy judge has ruled that cryptocurrency deposited in Celsius Network’s interest-bearing accounts belongs to the company, rather than its customers. Judge Martin Glenn’s decision means that a total of $4.2 billion in cryptocurrency deposits can be used by Celsius as it wishes, while also designating customers as unsecured creditors. The question of who has ownership rights over cryptocurrency assets at bankrupt digital exchanges and other platforms is a central issue in the chapter 11 cases of Celsius and other companies that went bankrupt in 2021, including FTX and BlockFi.
Costumes Consented to Handing Over Funds
Celsius has always argued that the cryptocurrency held in high-interest Earn accounts belongs to it rather than depositors. Earn accounts make up the bulk of customers’ deposits at Celsius, with some 600,000 holders of high-interest Earn accounts affected by the decisoin. More than $150 million of assets were transferred from interest-bearing accounts to custody accounts shortly before the bankruptcy, with Celsius claiming due to rules surrounding so-called ‘preferential transfers’, any funds transferred from an interest-earning account to a custody-only account in the 90 days prior to the bankruptcy also belong to them.
Celsius Evidence Swayed Judge
Celsius’s lawyers argued that the terms of use, which were agreed to by users through clicking a button on their mobile devices, granted ownership rights to the company so that it could lend, sell, pledge, and use the assets for investment purposes. Judge Glenn yesterday agreed with Celsius and ruled that the $4.2 billion haul belongs to Celsius rather than Earn depositors, stating that Celsius had provided convincing evidence that over 99% of users approved a recent version of the terms of use for the interest-earning accounts.
He acknowledged that while Celsius updated its user agreement eight times and threatened to suspend the accounts of users who did not consent to the new terms, customers were ultimately responsible for understanding where their money would go. He added that designating some customers’ assets as belonging to them alone would decrease recoveries for other users, given that there isn’t enough money in the company to repay everyone in full.
Celsius Can Now Afford to Stay in Chapter 11
The immediate impact of the decision is to allow the company to sell $18 million in stablecoins to fund expenses for a longer stay in chapter 11 bankruptcy. Celsius executives have testified in bankruptcy court that the company will run out of money by March and will need to raise funds to cover expenses for staying in chapter 11 beyond that point.
The ruling also categorized Celsius customers as “unsecured creditors”, which means that they will have to wait for the company to formulate a restructuring plan, find buyers for its assets, or liquidate its cryptocurrency before they can receive any of their funds back.
