A U.S. judge has determined that certain customers of bankrupt crypto lender Celsius Network are entitled to receive their deposits back.
Celsius Network was among the larger crypto platforms to go bankrupt this year, after suspending withdrawals in June. Now, a ruling on customer assets in its bankruptcy case could set a precedent for similar cases, such as FTX.
Celsius Account Differences
U.S. Bankruptcy Judge Martin Glenn is determining who is entitled to funds held in accounts on the Celsius Network. If he decides that deposits are the property of customers, they will be more likely to receive their assets back. On the other hand, if he decides those holdings belong to Celsius, those customers join the extensive list of creditors.
Celsius has argued that assets held between its “earn”, “custody”, and “withhold” accounts should be designated differently. Customers earned interest on crypto held in “earn” accounts, which Celsius used to make loans. Celsius believes that it retains ownership over these deposits and those that commingled with other clients’ holdings.
These types of accounts were the default at Celsius until before regulatory probes alleged these accounts were unregistered securities offerings. Following this, the crypto lender also started offering non-interest bearing “custody” and “withhold” accounts. The bankrupt lender believes that funds in these accounts rightfully belong to the customers who held them there.
Customers Keeping “Custody” Crypto
Judge Glenn seems to have agreed with Celsius’ appraisal, ruling that crypto held in “custody” accounts belonged to customers. Consequently, these customers, and those with accounts too small for Celsius to claw back to repay other customers, are entitled to receive their funds back. The creditors committee has estimated that the total crypto assets held in “custody” accounts amount to $50 million.
However, Glenn has yet to rule on ownership of crypto held in Celsius’ “earn” or “withhold” accounts. Incensed customers on the other hand have little doubt about who owns the crypto in these accounts. Celsius drew further ire from these customers when it won court approval to disburse bonuses to its employees.
Yet, the ruling may come as little solace even to those customers who held crypto in “custody” accounts. Despite retaining ownership of the assets, bankrupt companies may lack the total amount of funds to repay every customer in full.
Determining who takes priority in receiving their assets back could be another prolonged process that could set further precedents in other bankruptcy cases.
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