In a recent decision by Chief Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York presiding over cryptocurrency Chapter 11 megacase, In re Celsius Network, LLC, et al., Case No. 22-10964 (MG), Judge Glenn held that crypto customers of Celsius who deposited their cryptocurrency in interest-bearing accounts under Celsius’ “Earn Program” have lost all right and title to those assets. The ruling, which affects approximately 600,000 accounts with assets valued at $4.2 billion, clears the way for Celsius to liquidate certain of those assets to fund its administrative expenses, and leaves the depositors holding unsecured claims.
On January 4, 2023, the Bankruptcy Court entered an order approving Celsius’ hotly contested motion establishing that Celsius Network’s bankruptcy estate held legal title to its customers’ crypto-related assets deposited into “Earn Accounts” through Celsius’ Earn Program and granting Celsius the authority to liquidate certain variations of the cryptocurrency Stablecoin held in customer Earn Accounts.
In consideration for the Rewards payable to you on the Eligible Digital Assets using the Earn Service . . . and the use of our Services, you grant Celsius . . . all right and title to such Eligible Digital Assets, including ownership rights, and the right, without further notice to you, to hold such Digital Assets in Celsius’ own Virtual Wallet or elsewhere, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and to use or invest such Digital Assets in Celsius’ full discretion. You acknowledge that with respect to Digital Assets used by Celsius pursuant to this paragraph:
1. You will not be able to exercise rights of ownership;
2. Celsius may receive compensation in connection with lending or otherwise using Digital Assets in its business to which you have no claim or entitlement; and
3. In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable, and you may not have any legal remedies or rights in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under any applicable laws.
In re Celsius Network LLC, Case No 22-10964(MG), 2023 WL 34106, at *4 (Bankr. S.D.N.Y. Jan. 4, 2022).
While the order was unfavorable to Celsius’ customers using the Earn Program, Judge Glenn did not extend its ruling to determine ownership of assets in Celsius’ non-interest-bearing accounts including the Custody Program, Withhold Accounts, or Borrow Program. Judge Glenn also refused to determine whether individual account holders might have valid defenses to the contract between those account holders and Celsius. Customers will also not be precluded from bringing claims for breach of contract, fraud, or other theories of liability, and will retain unsecured claims against Celsius.