Federal judge at the U.S Bankruptcy Court has ordered the crypto lender to return $44 million worth of customer assets held within its Custody and Withhold Accounts. The ruling is not applicable to over $4 billion worth of funds locked under Celsius’ Lending and Borrowing accounts.
Celsius, the ex-crypto lender that declared bankruptcy in July after facing liquidity crisis during the summer’s market downfall, had filed a motion with the bankruptcy court in September to allow customers with crypto assets deposited in certain accounts to withdraw their funds.
On Wednesday, federal judge Martin Glenn of the U.S Bankruptcy Court for the Southern District of New York ordered Celsius to return cryptocurrencies worth $44 million held under its custody program back to customers. However, this ruling is only applicable to the CeFi (centralized finance) platform’s “Custody and Withhold Accounts” with funds worth $7,575 or less in value. According to the filing, about 58,000 users deposited over $210 million worth of crypto into Celsius’ custody and withhold accounts. Out of these, the company was holding “Pure Custody Assets” worth $44 million for 15,680 customers which fit within the court’s criteria.
Celsius’ lawyers distinguished between custodial funds as “Pure Custody/Withdrawal Assets” and “Transferred Custody/Withdrawal Assets”. ‘Pure’ assets are funds that were deposited into the custody accounts first, while ‘Transferred’ assets are funds that were deposited in Earn or Borrow Programs first and then transferred to custody accounts. ‘Transferred Custody Assets’ were not included in the judge’s ruling.
On the other hand, customers that have their funds locked in ‘Celsius Earn and Borrow’ accounts that allow users to earn interest by lending out their crypto (Earn) and take out loans in fiat or crypto by collateralizing their crypto assets (Borrow), are not eligible to receive their funds. In a hearing held in October, Celsius argued that unlike the ‘Custody and Withhold’ program, funds held under its ‘Earn and Borrow’ program belong to the company as customers gave up ownership of the assets when they agreed to its terms and conditions.
In June, the London-headquartered crypto lender paused all activity on its platform and suspended withdrawals. Majority of the $4.7 billion worth of customer funds locked on Celsius are held within Earn and Borrow accounts. Angered customers then filed lawsuits against the company demanding back their assets in custody accounts. To date, client funds remain locked on the crypto lending and borrowing platform.
As per the bankruptcy code, if requested upon by creditors, the notion to pay back funds amounting to $7,575 or less cannot be ignored by Celsius. This amount is referred to as the “statutory cap”.
On December 5th, judge Glenn approved a motion that was made by the company in October to set aside $2.8 million for Key Employee Retention Program (KERP). KERP will allow Celsius to maintain few trained employees that can help the company continue limited operations and financial restructuring under Chapter 11 protection. Employees have been quitting Celsius in huge numbers, with only 170 remaining with the firm compared to 370 that were on the balance sheet when it first started bankruptcy procedures.
Celsius had filed another motion requesting the court to allow it to sell $18 million worth of stablecoins held under Earn and Borrow Accounts to fund its reorganization process. The judge will pass a ruling on the issue of fund ownership under lending accounts on December 12th.