Digital assets deposited in Celsius Network’s Earn program belong to the bankrupt company’s estate and not individual users, according to a Wednesday ruling by U.S. Bankruptcy Judge Martin Glenn.
The court also determined that Celsius’ bankruptcy estate can sell $18 million worth of stablecoins—crypto assets that peg their price to another currency like the dollar—which were deposited in Earn accounts to fund administrative expenses.
“Earn Assets in Earn Accounts constitute property of the Estates, and that the Debtors may sell stablecoins outside of the ordinary course of business,” Judge Glenn wrote in his ruling.
Bankruptcy Judge Orders Celsius to Return $44M in Cryptocurrencies
The U.S. bankruptcy judge responsible for the Celsius Network case has ordered the bankrupt crypto lender to return around $44 million worth of cryptocurrencies. According to Bloomberg, the ruling by Judge Martin Glenn will impact customer funds that never touched the firm’s flagship interest-bearing lending service, which represents a fairly small minority of the overall customer funds held by Celsius. According to a recent court filing, around 58,300 "Custody Customers" held assets worth $210...
Users who participated in the bankrupt company’s lending service were told they could earn interest on cryptocurrencies deposited with the company, but lost access to their funds in June when Celsius froze withdrawals on its platform citing “extreme market conditions.”
Today’s ruling will likely prevent those who took advantage of the service from receiving the full amount they deposited because they are considered unsecured creditors and “may recover only a small percentage of their claims” as a result.
When Celsius entered bankruptcy in July, the company had approximately 600,000 interest-bearing accounts, according to a court document published by Celsius’ claims agent Stretto.
A recent filing states the value of the company’s Earn accounts was approximately $4.2 billion shortly before it filed for bankruptcy. A portion of the Earn accounts consisted of stablecoins, which were valued at $23 million as of September.
The determination referenced Celsius’ terms of use for those that participated in the company’s lending service, which states Celsius held “all right and title to such Eligible Digital Assets, including ownership rights.”
In objecting to the estate’s arguments, account holders argued that the terms of service for Earn accounts were “ambiguous” and that the assets’ ownership could not be considered without weighing additional evidence, such as statements made by former company Chief Executive Alex Mashinksy.
“The objectors say that numerous statements by Celsius’s former Chief Executive Officer (“CEO”), Alex Mashinsky, and possibly other extrinsic evidence, demonstrate that the Account Holders have always owned the assets in the Earn Accounts,” the recent filing states.
Bankrupt Crypto Lender Celsius Wants to Sell its $23M Stablecoin Holdings
In the latest chapter of Celsius’ ongoing liquidity crisis, which first became public when the lender froze customer withdrawals in June, the bankrupt crypto lender has asked the U.S. Bankruptcy Court for the Southern District of New York for permission to sell its stablecoin holdings. Court filings from yesterday indicate that Celsius has asked for authorization to sell its stablecoins in order to pay for operations. The company previously released a coin report on Wednesday revealing that it h...
However, the argument did not sway Judge Glenn, who noted that the sale of said stablecoins will help the company fund its bankruptcy proceedings because Celsius is quickly exhausting its available funds.
“A rare point of agreement among all parties is that the Debtors’ liquidity is precipitously running out,” the document stated. “The Debtors need to generate liquidity to fund these Chapter 11 cases.”
Judge Glenn ordered the bankrupt crypto lender to return $44 million worth of cryptocurrency to customers last month, specifically those that had deposited funds in the firm’s Custody and Withhold accounts.
