(Kitco News) - The judge presiding over the bankruptcy case for the defunct crypto-lending platform Celsius Network has ruled that the funds deposited by customers into the company’s ‘Earn’ program are the property of Celsius, per the terms of service.
Approximately 600,000 accounts that held assets valued at $4.2 billion – including $23 million worth of stablecoins – are affected by the ruling from U.S. Bankruptcy Judge Martin Glenn, who wrote in a court order that the company does not have enough funds to fully repay those deposits.
"The Court concludes, based on Celsius’s unambiguous Terms of Use, and subject to any reserved defenses, that when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates (the 'Estates')," Glenn wrote.
Due to the ruling, most Celsius customers will be considered unsecured creditors, which puts them at the bottom of the list when it comes to recouping funds through the bankruptcy process. Priority will be given to customers who held non-interest-bearing accounts and other secured creditors, according to a report from Reuters.
"The issue of ownership of the assets in the Earn Accounts is a contract law issue,” Glenn wrote. "The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform. Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process."
As part of his ruling, Judge Glenn also determined that Celsius was within its rights to sell $18 million worth of stablecoins to help fund the company’s administrative costs for the next several months.
The ruling is likely to have ramifications for cryptocurrency investors using similar products across other platforms, a number of which have also entered bankruptcy in recent months.
In December, Glenn ruled that customers who had non-interest-bearing custody accounts, whose funds were not commingled with other Celsius assets, and whose accounts were too small for Celsius to use to repay other customers were entitled to their deposits back.
|
| Court extends chapter 11 deadline as Celsius works to stave off liquidation |
Charges filed against Celsius founder Alex Mashinsky
On Thursday, New York Attorney General Letitia James filed a lawsuit against Alex Mashinsky, the founder and former CEO of Celsius, for making numerous “false and misleading statements” which led to investors losing billions.
The lawsuit was announced by the New York Attorney General’s office and accuses Mashinksy of “defrauding hundreds of thousands of investors, including more than 26,000 New Yorkers, out of billions of dollars worth of cryptocurrency.”
According to James, Mashinsky misrepresented the platform’s financial condition which directly contributed to investor losses and also failed to register as a salesperson for Celsius and as a securities and commodities dealer.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said James. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal. Today, we are taking action on behalf of thousands of New Yorkers who were defrauded by Mr. Mashinsky to recoup their losses.”
Through the lawsuit, James is looking to “permanently bar Mashinsky from engaging in any business relating to the issuance, offer, or sale of securities or commodities in New York; stop him from serving as a director or officer of any company doing business in New York; and secure disgorgement of any proceeds derived from Mashinsky’s unlawful conduct, as well as damages and restitution for investors,” the press release said.
