In the USA, a new decision has been made regarding the services of Celsius Network. A federal judge has ruled that Celsius’s interest-bearing product “Earn” has transferred control of customers’ assets to the platform. This means they are part of the company’s bankruptcy clauses. Here are the details…
New development in Celsius court
Judge Martin Glenn, the US bankruptcy chief judge in the Southern District of New York, said Wednesday in a court order that Celsius’s terms of service made it clear that it had seized crypto assets invested in the Earn product and hit some customers hoping to get their funds back. Celsius held approximately $4.2 billion in various cryptocurrencies in its Earn product as of July 2022, of which $23 million is in stablecoins. The court document contains the following statements:
Glenn also wrote that Celsius “made a good business reason to allow the sale” of nearly $18 million worth of stablecoins, a move opposed by state regulators and the U.S. Office of Trustees. The proceeds from the sale of these stablecoins will cover Celsius’s administrative costs over the next few months.
The judge ruled that the terms of the contract were clear
“A rare point of agreement between all parties is the rapid depletion of Borrowers’ liquidity,” Glenn wrote. The decision, which allows Celsius to retain control of the assets in the Earn account, will have ramifications for cryptocurrency investors using similar products on other platforms, some of which have gone bankrupt in recent months. According to the judge, “The issue of ownership of assets in Earn Accounts is a question of contract law. The Borrowers and the Committee claim that the crypto assets deposited in Earn Accounts belong to the Borrowers”.
Some of these account holders claimed that Celsius had violated their own contract or that Celsius had “failing to perform their fiduciary duties”, but the judge said Celsius’s terms of service were clear. The court will hold a hearing on January 10, 2023 to discuss a motion as to when Celsius creditors can present their claims.
What about wallet services?
A less contentious area of concern for clients of bankrupt crypto exchanges is wallet services. Celsius and cryptocoin.com Platforms like BlockFi, a bankrupt crypto lender, often treated wallet funds as if they belonged to their users, not the companies themselves. Still, there is some controversy even in this area. Some clients from BlockFi argued that before BlockFi’s bankruptcy, they tried to convert some funds from BlockFi Interest Accounts into Wallet Accounts, but BlockFi is now trying to reverse some of these transactions. The documents showed that, in total, these accounts totaled about $1.6 million.
According to the document, on-hand customers transferred money from their interest accounts to their wallet accounts between November 10, 2022 and November 18, 2022. On November 10, BlockFi announced it was suspending withdrawals, but according to the court filing, the company did not say it was suspending those conversions. Indeed, according to the documents, at no point in these circumstances did BlockFi say it would suspend transfers from interest accounts to wallet accounts.