Judge Denied Motions From Celsius Users Looking To Recover Assets

By Kevin • January 25, 2023 9:13 pm • Comments

Celsius Network was known as one of the major crypto lending platforms that had filed for bankruptcy last year.

As a result, Celsius users found a lot of their assets locked on the platform and were unable to withdraw their assets which created a lot of attention online in the crypto community.

Recently, there have been multiple users who attempted to reclaim these assets in court, but all of the motions were denied by Judge Martin Glenn.

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This decision from the United States Bankruptcy Court further solidifies the risk of storing assets on a third-party platform as even the court has confirmed that assets on the platform are considered the property of bankruptcy estates.

Until the laws and regulations regarding these bankruptcies are changed, all users should use the platform for their services and then store the assets on private wallets.

CoinTelegraph reports:

Judge Glenn said the court took the allegations against Mashinsky “seriously” but denied all three motions. In Khanuja’s case, he said:

“Any claim that Celsius breached its contract with Khanuja would not affect the ownership of cryptocurrency deposited in Khanuja’s account. As the Earn Opinion explains, the cryptocurrency deposited in Earn Accounts became property of Celsius […] the cryptocurrency in Khanuja’s Earn Accounts was and remains property of the estate.”

Louise Abbott, a partner at United Kingdom-based firm Keystone Law, told Cointelegraph in December that one legal tactic available to FTX users — the exchange is also going through the bankruptcy process in the U.S. — would be to claim their crypto and fiat assets “remained their property at all times” and shouldn’t be under the control of the debtors’ estates.

Though Abbott was referring to FTX funds donated to third parties, the recent rulings in the Celsius case suggested its terms of use granted the platform “all right and title to such Digital Assets, including ownership rights”.

Many investors believe that all future bankruptcy processes regarding crypto firms within the United States will also likely follow the same rules.

After all, a lot of these bankruptcy regulations have not changed for many years and are certainly updated to adapt to the new crypto landscape.

Because user funds now belong to Celsius, this means that the currently locked $4.2 billion in funds on the platform is the property of Celsius.

The recent collapse of major crypto lending platforms seems to have had a short term negative impact on the crypto markets although the market has recently experienced a recovery.

Whether or not the Celsius users will ever be returned any portion of their assets is still unknown at this time.

Crypto.news concludes:

The ruling, which has been upheld by the United States Bankruptcy Court for the Southern District of New York when dealing with the three motions filed by Celsius’ clients, was based on the platform’s terms and conditions. According to Judge Glenn, the language employed in the company’s terms is straightforward and leaves no room for interpretation, invalidating any arguments made by the platform’s clients.

The terms constitute a binding investment contract, “governed by New York law,” meaning that the ownership of the funds was transferred to Celsius as soon as they were locked in the platform’s Earn program.

Celsius first announced liquidity issues in June 2022, failing to process users’ withdrawals due to “extreme market conditions.” The company filed for bankruptcy the following month. Since then, New York Attorney General Letitia James has announced a lawsuit against former CEO Alex Mashinsky for defrauding investors.

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