A bankruptcy judge has dashed the dreams of investors hoping to retrieve their crypto funds from Celsius. It turns out, assets placed in the now-defunct crypto exchange’s high interest “Earn Accounts” belong to Celsius, not the account holders, according to a Wednesday ruling from Judge Martin Glenn.
The decision came down to an “unambiguous provision” in one section of Celsius’ terms of use, wrote the judge. “All right and title to such Eligible Digital Assets, including ownership rights,” is held by Celsius, said version 8 of the company’s terms, which 99.86% of Earn Account holders agreed to, noted Glenn. Celsius’ incredibly shady terms of service also stated to signatories that “you may not have any legal remedies or rights,” to get your money back — which the company has previously argued protects them from legal complaints.
In practice, Judge Glenn’s ruling effectively confirms that stance, and means the company has no immediate obligation to repay about 600,000 investors amid the exchange’s ongoing bankruptcy proceedings. The more than $US4.2 ($6) billion that was frozen in Celsius accounts last June doesn’t belong to the people who put it there, it’s the property of the company that squandered it.
Though, technically, spurned Earn Account investors could still receive some sort of compensation from Celsius — the ruling means they’ll be last in line to do so. “To be clear, this finding does not mean holders of Earn Assets will get nothing from the Debtors,” Glenn wrote. “The amount of allowed unsecured claims is subject to later determination in this case (through the claims allowance process) and may potentially include damages asserted by Account Holders.” Further, Celsius customers could sue the company and claim that the terms they signed violated securities laws — but that’s no guarantee of re-payment.
If nothing else, let this be a reminder to always read the fine print when it comes to major financial transactions (and to not transform your actual, fiat currency into digital monopoly money). Though this specific ruling only applies to Celsius, it highlights a much larger issue within the wholly unregulated cryptoverse. Many other platforms have similar terms for account holders as Celsius did/does, Aaron Kaplan, a financial lawyer and crypto company owner, told the Washington Post. Would-be investors need to “understand the risks they are taking when depositing their assets into insufficiently regulated platforms,” he added.
Celsius drew in customers with promises of absurdly high (read: too good to be true) 18+% interest rates, which it had to make increasingly risky manoeuvres to fulfil. The company first halted withdraws and froze accounts in June 2022. And despite all of its attempts to reassure its users — the crypto network filed for Chapter 11 bankruptcy a month later amid a solvency crisis.
The crypto market lost $US2 ($3) trillion in value between November 2021 and summer of 2022. Celsius native token, also called Celsius, plummeted by more than 79% over the six months leading up to July 2022, and the exchange was holding a large chunk of its total funds in its own, trashed coin. As a bonus: Celsius’ execs cashed out millions of funds right before they halted withdraws for everyone else.
And if you think that all sounds sketchy and ponzi-esque, know that nearly every state regulatory body agrees with you. At least 40 states had opened investigations into Celsius by early September 2022. Just yesterday, New York’s Attorney General announced a lawsuit against Celsius’ dethroned CEO, Alex Mashinsky, over allegations of misleading investors. Investors might not get their money back, but maybe Celsius and its executives will get their comeuppance.