Celsius Bankruptcy Judge Rules Your Investments Belong to Celsius!

Crypto can’t seem to catch a break with the latest offender Celsius Network literally raw dogging its customers sans lube. What happened this time? Stay tuned.

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The cryptocurrency that Celsius Network LLC account holders deposited into Earn program accounts prior to the cryptocurrency lending company filing for Chapter 11 belongs to Celsius, and it is permitted to sell $18 million worth of those assets to continue funding its bankruptcy, a New York bankruptcy judge ruled on Wednesday.

U.S. Bankruptcy Judge Martin Glenn stated in a 45-page written opinion that he based his judgment on Celsius' "unambiguous terms of use."

According to the Court, the terms of use of Celsius "unambiguously transfer title and ownership of Earn assets deposited into Earn accounts from accounts holders to the debtors," creating "a genuine, enforceable contract" between Celsius and its account holders.

Once Celsius filed its Chapter 11 petition, the opinion stated that the cryptocurrency deposits were property of the bankruptcy estates.

Judge Glenn continued, "The court does not take lightly the implications of this judgement on ordinary persons, many of whom invested large funds into the Celsius platform.

The decision has an impact on over 600,000 accounts that, as of July 10, 2022, a few days before Celsius and six affiliates sought bankruptcy protection, contained cryptocurrency assets worth almost $4.2 billion.

It was in response to a motion Celsius made in September asking for permission to sell some of the stablecoin cryptocurrency in order to continue its bankruptcy cases.

After multiple parties expressed concerns, Celsius in November requested a court order establishing ownership of the cryptocurrency assets used in the Earn program.

Celsius offered its members the possibility to earn rewards on deposits of different digital assets including bitcoin and ether before it filed for bankruptcy.

Customers could deposit cryptocurrency through Earn accounts, which Celsius would then sweep into its main accounts and use to generate revenue. Customers who had these Earn accounts received rewards in the form of extra cryptocurrency, a practice that attracted regulatory attention.

According to Celsius, the conditions of usage of the company's earnings program explicitly state that participants are giving up their ownership rights to their assets in return for the incentives.

Federal and state officials contested the legality of the user agreement at a six-hour hearing convened by Judge Glenn in December on the crypto ownership arguments. Some objectors said that the agreement's eight different versions and phrasing caused confusion.

The motion received answers from nearly 30 creditors, 14 states, the committee of unsecured creditors, and the U.S. Trustee's Office, according to the opinion.

As of September 2022, Earn program accounts have almost $23 million in stablecoin, according to the opinion. Judge Glenn authorized Celsius to sell a portion for about $18 million to cover ongoing administrative costs.

According to the court's ruling on Wednesday, other Celsius programs including the Custody program, Withhold accounts, and the Borrow program do not have their assets determined as belonging to them.

The rights of any state or state authorities on whether Celsius broke state securities laws by promoting unregistered securities are not decided by the court's findings, according to Judge Glenn.

An inquiry for comments was not immediately answered by Celsius's representatives.

Josh A. Sussberg, Patrick J. Nash Jr., Ross M. Kwasteniet, Christopher S. Koenig, and Dan Latona of Kirkland & Ellis LLP are Celsius' legal counsel.

The matter is In re: Celsius Network LLC et al., case number 1:22-bk-10964 in the Southern District of New York's U.S. Bankruptcy Court.