According to the decision, non-interest-bearing account holders and other secured creditors would have higher precedence over the majority of Celsius customers.
According to a U.S. bankruptcy judge’s decision on Wednesday that Celsius Network holds the bulk of the bitcoin that users deposit into its web platform, the majority of the cryptocurrency lender’s customers would be last in line for payment in the case of the crypto lender’s bankruptcy. The judgement given by U.S. Bankruptcy Judge Martin Glenn in New York had an effect on almost 600,000 accounts that included assets totaling $4.2 billion when Celsius filed for bankruptcy in July. Glenn said that the company lacked the funds to fully repay such deposits.
The verdict would give priority to other secured creditors and non-interest-bearing account holders over most Celsius customers. It was uncertain if Celsius had a substantial secured debt. Additionally, the decision prevents customers with interest-bearing accounts from competing with one another for higher priority, averting a situation in which some of those customers receive 100% of their deposits back while others in a comparable situation only receive “a small percentage,” according to Glenn.
Glenn said that it was clear from Celsius’s terms of service that it was the owner of the funds that users placed into its interest-bearing Earn accounts. As a result, Earn users will be treated as unsecured creditors in Celsius’ bankruptcy and would receive their money last once the company has paid its other creditors.
Twelve US states and the District of Columbia have objected to Celsius’ bid to buy digital assets. They cited, among other things, the fact that it was unclear whether customers understood the terms of service and the fact that Celsius was under investigation for rule violations in several locations as reasons why the company might not be able to depend on the conditions of use.
Glenn claims that the ruling does not exclude any legal challenges to Celsius’s ownership of the bitcoin deposits or that Earn customers would receive “nothing” in the bankruptcy case. The court’s ruling states that Celsius customers may sue the cryptocurrency lender for fraud or breach of contract, and state authorities may contend that the accountholders’ contracts cannot be enforced because they violated state securities laws.
The purchase of digital assets by Celsius has drawn opposition from 12 US states and the District of Columbia. They listed many reasons why the firm might not be able to rely on the terms of use, including the fact that it was uncertain if clients understood the terms of service and the fact that Celsius was under investigation for rule breaches in several regions.
In a ruling published in December, Glenn determined that a select group of Celsius customers with various types of accounts were entitled to their deposits back following the company’s insolvency. The only clients who might profit from that decision are those who have non-interest bearing custody accounts, money that is not merged with other Celsius assets, and accounts that are too tiny for Celsius to seek to get back to compensate other customers. Other bitcoin bankruptcies, including those of cryptocurrency lenders BlockFi and Voyager Digital, also strongly rely on the more general issue of who really owns the relevant assets.
