A bankruptcy judge has ruled that over $4 billion in user-invested money belongs to bankrupt crypto company Celsius, according to court documents.
A new ruling in Celsius’ bankruptcy case by Judge Martin Glenn from the Southern District of New York Bankruptcy Court said that based on the company’s “unambiguous” Terms of Use, the money deposited into Earn Accounts was the property of Celsius.
“The Court concludes, based on Celsius’s unambiguous Terms of Use, and subject to any reserved defenses, that when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates (the “Estates”),” court documents said.
Celsius Earn Accounts allowed users to deposit cryptocurrency assets into a Celsius wallet and earn a percentage yield on their assets. Now, a judge is saying that the $4.2 billion in assets still held in Earn accounts belongs not to the users who deposited them—but Celsius.
Celsius had 600,000 accounts in its Earn program when it filed for Chapter 11 bankruptcy mid-last year, but the bankruptcy court was clear in its filing that those accounts are still creditors of Celsius and are still owed money. So while the judge determined the money in Earn Accounts is the property of Celsius, it still needs to find a way to pay Earn Account holders—and other account holders—their money back.
But there’s little precedent for large cypto companies filing for bankruptcy, so experts say customers could be waiting years for just a fraction of their money.
Judge Glenn made it clear in his ruling that the issue of ownership was a “contract law issue,” saying that there was a “valid contract between Celsius Account Holders and Celsius” and the terms of the contract “unambiguously transferred all right and title of digital assets to Celsius.”
Unlike deposits at a bank, which are guaranteed by the Federal Deposit Insurance Corporation (FDIC), deposits in the crypto space are still heavily unregulated. If a bank can’t return a customer’s deposit, the FDIC will, but a crypto company isn’t required to and customers have no government agency there to pick up the slack.
The company has already pitched selling $18 million worth of stablecoin assets from its Earn accounts to fund its reorganization amid the bankruptcy litigation.
The explanation from Judge Glenn could have far-reaching ramifications on the larger crypto space. Since Celsius’ Earn Account Terms of Service was interpreted in a court to mean that assets deposited were the property of Celsius, other crypto companies could use the decision as precedent if they go under or need to pull money from user accounts.
The ruling could potentially have implications for the collapse of FTX, which is being accused of stealing funds from user accounts to use for its own investing, although it is unknown what was in FTX’s terms of service.
Celsius is just one of a string of crypto companies, alongside FTX, to face problems during the “crypto winter” period that’s been happening for the better part of a year.
The Winklevoss twins’ crypto firm Gemini laid off staff last year amid lawsuits and Coinbase joined a list of other crypto exchanges and companies that laid off people or implemented hiring freezes.
