The chief U.S. bankruptcy judge in the Southern District of New York, Judge Martin Glenn, rules that based on Celsius Networks’ unambiguous Terms of Use, the crypto assets deposited in Earn Accounts are the property of the Celsius’ bankruptcy estates.
Roughly 600,000 accounts in Celsius’ Earn program possessed crypto assets valued at approximately $4.2 billion As of July 10, 2022. It consisted stablecoins worth $23 million as of September 2022.
This does not mean that Earn clients in the Celsius bankruptcy case will receive “nothing.” Most account holders are left as unsecured creditors and may only receive a small portion of their claims.
If only a small number of Earn account holders are successful in proving that they are the owners of the crypto assets in their accounts, they hope to recover 100% of their claims.
According to Celsius, since the Earn assets are owned by the Estates, they may sell stablecoins to raise money for the costs related to running the bankruptcy processes.
Judge Martin Glenn ordered Celsius to sell stablecoins worth about $18 million in the Earn accounts citing that “In the exercise of its business judgment, the Debtors have established a good business reason to permit the sale.”
According to Glenn, Celsius clients may be able to sue the lender for fraud or breach of contract, and state regulators may be able to argue that the account holders’ contracts cannot be executed because they broke state securities rules.
The United States Trustee and state securities regulators claim that Celsius has not adequately disclosed how much of the earnings from any stablecoins will go toward funding the mining operation or the GK8 digital asset custody platform.
Twelve US states and the District of Columbia protested Celsius’ attempt to acquire the digital assets saying among other reasons, that it was uncertain if users understood the terms of service.
They added that Celsius was under investigation in multiple jurisdictions for breaking laws, which may theoretically make it impossible for the business to rely on the terms of use.
Also Read: US Bankruptcy Judge orders Celsius to return $50M to users
