A federal bankruptcy judge has ruled that cryptocurrency deposited in interest-bearing accounts at Celsius Network, a now-bankrupt cryptocurrency lending platform, actually belongs to the company, thanks to the fine print.
The verdict gives Celsius ownership of the $4.2 billion in cryptocurrency users deposited into its high-interest Earn program, according to a 45-page report. presentation of the US Bankruptcy Court for the Southern District of New York on Wednesday.
With the Earn program, Celsius allowed users to deposit cryptocurrencies like bitcoin, ether, and tether and receive weekly interest payments. Depending on the time horizon and token, the platform offered up to 18% annual interest.
Celsius had approximately 600,000 accounts in its Earn program, and the accounts were collectively worth approximately $4.2 billion as of July 10, 2022, the filing noted. About $23 million of that value consisted of stablecoins. But all of that is now owned by the estate, also known as Celsius, the judge ruled.
Thanks to Celsius’ “unambiguous” terms and conditions, all cryptocurrency assets, including stablecoins, that were deposited into Earn Accounts became the property of Celsius, according to the filing.
Celsius, once one of the world’s largest cryptocurrency lenders, declared bankruptcy in mid-July 2022. At the time, Celsius said it had between $1 billion and $10 billion in assets and liabilities and more than 100,000 creditors.
Before filing for bankruptcy, Celsius frozen withdrawals for clients in June citing “extreme market conditions.” That freeze never lifted. Now, the crypto assets found in those accounts are owned by Celsius, the judge ruled.
This decision is in stark contrast to the argument thousands of Celsius clients have had when claiming that their deposited funds were, in fact, theirs. Last month, Celsius fought clients in court over ownership of the deposited funds, as they wanted to sell around $18 million in stablecoins from Earn accounts to fund his organization. Now, Celsius can sell those assets.
And for those seeking to fight the court ruling and recover their funds, it seems unlikely because “there simply will not be enough value available to pay all Account Holders in full,” the document states.
With bankruptcy proceedings, secured creditors are often given priority to receive frozen funds. But the filing views Earn account holders as unsecured creditors of Celsius, meaning their recovery depends on distributions to unsecured creditors under a Chapter 11 bankruptcy plan.
“If only a few Account Holders prevail with their arguments that they own the cryptocurrency assets in their accounts, they expect to recover 100% of their claims, while most Account Holders are left as unsecured creditors and can recover only a small percentage of their claim(s.”