Judge Rules That Customer Funds In Earn Accounts Belong To Celsius 

Judge Rules That Customer Funds In Earn Accounts Belong To Celsius 

After verifying the terms of service, New York bankruptcy court has ruled that customer funds held by Celsius under its Earn and Borrow program belong to the company. Last month the court ordered the ex-crypto lender to return £36 million held in certain Custody and Withhold accounts.

On Wednesday, Judge Martin Glenn of the U.S Bankruptcy Court for the Southern District of New York concluded in a 45-page written decision that funds deposited by customers into Celsius Network’s yield-bearing Earn Accounts does in fact belong to the company. The court also ruled that the estate – that is Celsius – will be allowed to sell £14 million worth of stablecoins it holds in the interest earning accounts to fund reorganisation procedures under Chapter 11 protection. 

At its height, the crypto lender had funds worth £7.5 billion under management and 600,000 customers who had signed up to its lending program. Users were promised high APY (annual percentage yield) on their crypto assets which were loaned out to institutions and individuals. However, in June the company faced a liquidity crisis due to “extreme market conditions” and exposure to the collapsed Terra/Luna project and ex-crypto hedge fund Three Arrows Capital (3AC). In July, the company froze customers’ funds and filed for bankruptcy. 

In his decision, Judge Glenn noted that the court found a valid contract between “Celsius Account Holders” and the company, and the Terms of Service “unambiguously transferred all right and title of digital assets to Celsius”. This means, Earn program customers who are considered unsecured creditors of Celsius will only be able to recover a small percentage of their claims. However, it is still unknown how much they will receive. 

According to filings made at the bankruptcy court by Celsius’ claims agent Stretto, the total value of assets held by the company under Earn Accounts was approximately £3.48 billion which included stablecoins – cryptocurrencies pegged to the value of a fiat currency like dollar, euro or pound – that were valued at £19 million before its insolvency. 

Angry customers filed an objection to the crypto lender’s claims, arguing that the judge’s ruling cannot be passed without considering additional evidence like, statements made by Celsius co-founder and former CEO Alex Mashinsky who said funds belonged to the customers, and the firm’s not clearly defined terms of service. In response, the judge stated that the proposed sale of stablecoins was necessary for the company to fund bankruptcy proceedings as its liquidity was running out. 

Last month, Judge Glenn ordered Celsius to return £36 million worth of assets under its Custody and Withhold Accounts to customers. However, not all funds under the program were eligible for refund. The company’s lawyers distinguished the accounts as those with “Pure” and “Transferred” Custody/Withhold assets. While Pure accounts held assets that were directly deposited into them, Transferred accounts contain assets that were first deposited in Earn or Borrow programs and later transferred to Custody Accounts.

The court ruled that Pure Custody and Withhold account holders with deposits of £6,282 or less will have their funds returned by the lender. During the hearings in September, Celsius reported that about 58,000 customers deposited £174 million worth of crypto assets into its Custody accounts, from which 15,580 users designated as Pure Account holders will be reimbursed. 

Also Check: UK National Crime Agency Launches Crypto Unit 

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