U.S. Judge Says Celsius Network Holds Most Client Crypto Deposits

Jan 4 (Reuters) – A U.S. bankruptcy judge ruled on Wednesday that Celsius Network owns most of the cryptocurrency customers deposit on its online platform, meaning most Celsius customers will be the latest in line for crypto lender bankruptcy repayment.

The ruling by US bankruptcy judge Martin Glenn in New York affects around 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, Glenn wrote.

The decision means that most Celsius customers will be lower priority than customers who held non-interest bearing accounts and other secured creditors. It was unclear whether Celsius had significant secured debt.

The decision also prevents in-fighting for higher priority among customers with interest-bearing accounts, avoiding a situation in which some of those customers are refunded 100% of their deposits while customers in a similar situation can recover “only a small percentage” of their deposits, according to Glenn. Celsius’s terms of service made it clear that the cryptocurrency lender took ownership of customer deposits in its interest-bearing Earn accounts, according to Glenn. This means that Earn’s customers will be treated as unsecured creditors in Celsius’ bankruptcy, and they will be last in line for repayment after Celsius pays off the highest priority debts.

Twelve US states and the District of Columbia had opposed Celsius’ bid to lay claim to the digital assets. In particular, they argued that it was unclear whether customers understood the terms of service and that Celsius was under investigation in several states for violating regulations, which could arguably prevent the company rely on the terms of use.

The ruling doesn’t mean Earn’s clients will get “nothing” in the bankruptcy case, and it doesn’t preclude further challenges to Celsius’ ownership of the crypto deposits, Glenn wrote.

Celsius customers may be able to sue the crypto lender for fraud or breach of contract, and state regulators may be able to argue that account holder contracts cannot be enforced because that they violated state securities laws, according to the ruling.

“The Court does not take lightly the implications of this decision on individuals, many of whom have deposited significant savings on the Celsius platform,” Glenn wrote. “Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims process.”

The decision authorizes Celsius to sell approximately $18 million worth of stablecoins that were held in customers’ Earn accounts.

In December, Glenn ruled that a relatively small group of customers with different types of Celsius accounts were entitled to their deposits during Celsius’ bankruptcy. This decision was limited to customers who had non-interest bearing deposit accounts, whose funds were not commingled with other Celsius assets, and whose accounts were too small for Celsius to seek to recover to repay. other customers.

The broader question of who owns the crypto assets is also critical in other crypto bankruptcies, including the cases of crypto lenders Voyager Digital and BlockFi.

Reporting by Dietrich Knauth and Tom Hals in Wilmington, Delaware; Editing by Alexia Garamfalvi

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