Creditors of the bankrupt cryptocurrency lending platform Celsius Network suffered a setback on Wednesday after Judge Martin Glenn determined that user funds trapped on Celsius’ Earn product belong to the debtors’ bankruptcy estate.
Glenn concluded that, based on Celsius’ “unambiguous” terms of use, assets became the property of Celsius upon being deposited, and the assets remaining in the Earn accounts on the petition date became the property of the Debtors' bankruptcy estates.
The ruling affects up to 600,000 accounts holding US$4.2bn worth of crypto assets as of the July 10 Chapter 11 petition date.
Celsius’ debtors have sought to sell up to US$18mln in stablecoin assets to fund operating expenses including the administration of Chapter 11.
Multiple state securities regulators have argued that a sale of stablecoins should not be approved since the debtors “have sufficient liquidity”, but Judge Glenn has ruled that “in the exercise of its business judgment, the debtors have established a good business
reason to permit the sale”.
Account holders, understandably, argue that they own the assets in the Earn accounts and should have them returned to them immediately.
Founded by Alex Mashinksy, Celsius was one of the most high-profile collapses in the crypto space in 2022.
Facing a liquidity crisis, on June 13 2022 Celsius placed a “ temporary” freeze on asset withdrawals in order to prevent a bank run.
Two weeks before Celsius froze accounts, Mashinsky took to YouTube channel InvestAnswers to rally against the FUD (fear, uncertainty and doubt) surrounding the platform.
The Fudders are “idiots” who “have nothing better to do” exclaimed Mashinsky.
But the temporary freeze became permanent, and Mashinsky has since stepped down as chief executive.
While Judge Glenn stated that “a fundamental principle of the Bankruptcy Code is equality of distribution”, he concluded that “there simply will not be enough value available to repay all account holders in full”.
Responding to the ruling on Twitter, Simon Dixon, who has become an unofficial spokesman for Celsius creditors, said that “lawyers and the court are happy to take client assets to pay their fees (sick face). Enjoy spending the proceeds of crime”.
“The Debtors have shown a good business reason for the sale 9f stablecoins (to pay ongoing administrative expenses)” - Basically lawyers & the court are happy to take client assets to pay their fees. ???? Enjoy spending the proceeds of crime. #Celsius did not have the licenses. https://t.co/LfCcbjGlBi— Simon Dixon (@SimonDixonTwitt) January 5, 2023
Creditors face a long battle to recoup even a small percentage of their funds.
Creditors of Mt. Gox, the Japanese crypto exchange that folded in 2014, have still yet to receive the 142,00 bitcoins (US$2.4bn) currently held in a trustee account.