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According to a Jan. 4 memorandum by Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York, the cryptocurrency in the Celsius Earn account belongs to the bankruptcy estate and does not belong to the depositors who deposited it there. .
This decision is a blow to individual customers who have deposited crypto assets into approximately 600,000 Earn Accounts (“Earned Accounts”) managed by Celsius Network LLC and its affiliates (“Debtors”). Shortly before Celsius Debtor filed for bankruptcy in July 2022, Earn accounts contained approximately $4.2 billion worth of cryptocurrency. Debtors freeze withdrawals from earned accounts prior to filing, and bankruptcy stays prevent withdrawals after filing. Customers of Earn Accounts who wanted a full refund of their cryptocurrencies now hold general unsecured claims and could face significant losses.
In arriving at this decision, Judge Glenn narrowed the issue down to one of contract law. He argued that the terms and conditions governing the Earn Account were a valid and binding contract between the Celsius Debtor and the Earn Account holder. Further, these Terms and Conditions “expressly transfer from the Account Holder to the Debtor title and title to the assets credited to the Account by the Account Holder.” See Opinion, Docket No. 1822, p.10. 30.
Depositors who deposited cryptocurrencies into their accounts were asked to agree to the Terms of Service. The Celsius Debtor has his eight versions of these terms, and Earn showed irrefutable evidence that his 99% of his account holders accepted version 6 or later. rice field.
In the most recent version of the Terms of Service, in exchange for certain payable rewards, depositors “grant Celsius . followed:
Eligible Digital Assets used in the Acquisition Service or used as collateral in the Borrow Service may not be recoverable and legal remedies may not be available if Celsius becomes bankrupt, enters liquidation, or becomes unable to service its debts. or may not have rights. In connection with Celsius’ obligations other than Celsius’ creditor rights under applicable law.
See remarks 10-11.
This clause and similar language proved decisive for Judge Glenn. He found the contracts and subsequent amendments to those contracts to be enforceable under New York law. see opinion 27:00 (quote Whit v. Prosper Funding LLC, No. 15-00136 (GHW), 2015 WL 4254062, at *4 (SDNY July 14, 2015) (“In New York, a clickwrap agreement is a valid and enforceable agreement.”). So it should behave like it does what it says. In other words, it transfers ownership of the deposited assets from the depositor to Celsius.
Specifically, Judge Glenn said Wednesday’s ruling does not determine the underlying ownership of other Celsius deposit programs, such as the Custody Program, Withhold Program and Borrow Program. Furthermore, he noted that depositors who have their cryptocurrencies disowned may have various defenses or breach of contract claims against the property. He concluded: “The court has not downplayed the impact of this decision on ordinary individuals, many of whom had significant savings on the Celsius platform.”
This may be the beginning of a series of important judgments in the Celsius case. Judge Glenn will now preside over the second phase of the lawsuit, in which the bankruptcy court will expand its consideration of a series of issues, including priority claims regarding customers who withdrew assets in his 90 days prior to bankruptcy. Judge Glenn’s opinion could also serve as a milestone as judges face the thorny issue of digital asset owners at stake across the industry.
Wednesday’s decision has already impacted the administration of the Celsius case. Judge Glenn included a ruling that Celsius debtors could sell certain crypto assets to increase liquidity because the assets were found to be property of the estate. Additionally, on Friday, January 6, Judge Glenn dismissed a series of motions seeking that customers of Earn’s accounts be designated as secured creditors.
