The majority of Celsius Network’s customers would be last in queue for reimbursement in the crypto lender’s bankruptcy, according to a U.S. bankruptcy judge’s ruling on Wednesday that Celsius Network controls the majority of the cryptocurrency that users placed into its online platform.
About 600,000 accounts that included assets worth $4.2 billion before Celsius filed bankruptcy in July are impacted by the decision made by U.S. Bankruptcy Judge Martin Glenn in New York.
Glenn wrote that the corporation does not have the money to completely reimburse such deposits.
The judgement claimed non-interest-bearing account holders and other secured creditors will have higher precedence than the majority of Celsius customers. Whether Celsius has a sizable secured debt was unknown.
The decision also prevents clients with interest-bearing accounts from bickering among themselves for higher priority, preventing a scenario in which some of those clients receive 100% of their deposits back while other consumers in a similar situation only receive “a small percentage,” as per Glenn.
He added Celsius’s terms of service made it apparent that it owned the money that customers deposited into its interest-fruitful Earn accounts. Consequently, Earn users will be regarded as unsecured creditors in the whole area of Celsius’ bankruptcy and would be paid last after Celsius settles bills with greater priority.
Twelve US states and DC had protested Celsius’ attempt to acquire the digital assets.
They said, among other reasons, that it was uncertain whether clients understood the service terms and that Celsius was being investigated for rules violations in multiple places, which may plausibly preclude the company from depending on the conditions of use.
It’s likely the decision does not imply that Earn clients will receive “zero” in the bankruptcy case and it does not preclude any challenges to Celsius’s possession of the cryptocurrency deposits.
The decision meant Celsius clients may be able to sue the cryptocurrency lender for fraud or a breach of contract, and state officials may be able to argue that the accountholder’s obligations couldn’t be enforced because they broke state securities rules.
The Court does not disregard the effects of this judgement on common people, many of whom invested large sums of money in the Celsius system, Glenn said.
During the claims resolution process, creditors will have the chance to have a thorough hearing on the merit of these arguments.
The decision gives Celsius consent to sell almost $18 million value of stablecoins that were formerly kept in consumers’ Earn accounts.
In December, Glenn issued a decision stating that a small number of Celsius clients with various types of accounts were eligible for their deposits back after the company’s bankruptcy. Customers with non-interest-bearing custody accounts, money that was not combined with other Celsius resources, and accounts that were too modest for Celsius to attempt to claw back to compensate other customers were the only ones who might benefit from that judgement.
Other crypto bankruptcies, such as those of cryptocurrency lenders Voyager Digital and BlockFi, also heavily rely on the broader question of who actually owns the assets in question.
Contrarily, investors scared off by the demise of key sector participant FTX withdrew more than $8 billion in money, causing Silvergate Capital Corp (SI.N) to disclose a steep decline in fourth-quarter crypto-field deposits on Thursday, sending the company’s shares down about 39% premarket.
Amid a worsening business slowdown, the crypto-focused bank recently announced it would reduce its personnel by 40%, or around 200 employees.
The dire preliminary revenue report demonstrates the full extent of the damage that FTX’s bankruptcy, which it filed in November after neglecting to pay for customer withdrawals, has caused to the digital asset industry.
FTX was once one of the largest cryptocurrency exchanges in the world, and its bankruptcy represents a stunning turn of events for the company.
Silvergate had earlier claimed that it had no outstanding debts or interests in FTX, but since the exchange’s breakdown, which caused a massive crypto sell-off, its shares had lost 69% of their value.
