“The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform. Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process”, said Judge Martin Glenn.
U.S. Bankruptcy Judge Martin Glenn in New York has ruled that Celsius Network, the crypto lender that filed for bankruptcy in mid-2022, owns most of the cryptocurrency that customers deposited into its online platform.
The decision is likely to have an impact that goes beyond the Celsius bankruptcy as many other crypto lenders, such as Voyager Digital and BlockFi, may face similar rulings.
Genesis Global, the subsidiary of Digital Currency Group, is also expected to file for Chapter 11 bankruptcy, which means that Gemini clients that used the Gemini Earn service – linked to Genesis – may experience a similar outcome.
The decision means that most Celsius customers will be last in line for repayment in the crypto lender’s bankruptcy. The question of who owns crypto assets is a critical one at this point in time as the ‘crypto winter’ and improper risk management is forcing many firms to shut down.
Celsius’ Earn terms of service made clear it took ownership of deposits
The court ruling will affect approximately 600,000 accounts that held assets valued at $4.2 billion when Celsius filed for bankruptcy in July. The company does not have enough funds to fully repay those deposits, according to the Judge.
Celsius customers who held non-interest bearing accounts will be given priority over Earn account users. The ruling prevents in-fighting for higher priority between these two groups, avoiding a situation in which some of those customers are repaid 100% of their deposits while similarly-situated customers are able to recover “only a small percentage” of their deposits.
According to the court, Celsius’ terms of service made clear that the crypto lender took ownership of customer deposits into its interest-bearing Earn accounts. Because of that, Earn customers will be treated as unsecured creditors in Celsius’ bankruptcy. Earn customers are expected to get a few cents on the dollar.
“The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform. Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process”, said Judge Martin Glenn.
Celsius Network is now allowed to sell approximately $18 million in stablecoins that had been held in customers’ Earn accounts.
