Embattled crypto lender Celsius has been awarded the rights to crypto assets on the platform. This means that most of its customers will be the last ones to receive reimbursements.
On Jan. 4, a New York bankruptcy judge ruled that Celsius Network owns most of the crypto assets deposited by customers on its platform.
The move comes as a blow to Celsius users, who are now at the back of the repayment queue. This will affect around 600,000 accounts with assets valued at $4.2 billion when Celsius filed for bankruptcy in July 2022.
Bankruptcy Judge Martin Glenn used the Celsius terms and conditions to determine that funds in Earn Accounts were company property.
“The Court concludes, based on Celsius’s unambiguous Terms of Use … that when the cryptocurrency assets were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property,”
Big Blow to Celsius Customers
The ruling added that cryptocurrency assets remaining in the Earn Accounts on the July petition date became the property of the debtors’ bankruptcy estates. Additionally, the Earn Accounts had around $23 million worth of stablecoins as of September 2022.
The ruling means that most Celsius customers will be a lower priority than those with non-interest-bearing accounts. It also prevents any squabbling over priority between customers who had interest-bearing accounts.
According to Glenn, Celsius’ terms of service clarified that the company took ownership of customer deposits into its Earn accounts. Therefore, they will be treated as unsecured creditors in the bankruptcy proceedings. As a result, Celsius will repay its higher-priority debts first with what it has available.
The ruling read:
“Celsius held “all right and title to such Eligible Digital Assets, including ownership rights” in the cryptocurrency assets (including stablecoins) in the Earn Accounts,”
The ruling noted that the terms of service, originally dating back to February 2018, were updated with this clause in April 2022. Nearly all account holders had accepted the updated version.
Not Enough Money For Repayments
Glenn also wrote that the firm does not have enough money to repay those deposits.
“A fundamental principle of the Bankruptcy Code is equality of distribution. There simply will not be enough value available to repay all Account Holders in full.”
Most customers are left as unsecured creditors and “may recover only a small percentage of their claims,” he added.
In late December, BeInCrypto reported that Celsius had received several buyout bids. However, this latest ruling may change things.
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