Jan 4 (Reuters) – A U.S. bankruptcy judge has determined that The Celsius Network holds the lion’s share of cryptocurrency deposits made by its customers. Martin Glenn in New York announced the ruling, which affects around 600,000 accounts with assets of $4.2 billion. Celsius filed for bankruptcy in July and does not possess enough funds to cover all the deposits.
The decision means that holders of non-interest bearing accounts and secured creditors will have a lower priority. In addition, it prevents customers with interest-bearing accounts from competing for a higher position. This avoids a situation whereby some customers receive a full refund, while others only receive a small portion of their deposits, according to Glenn.
Twelve states and the District of Columbia opposed Celsius’s attempt to claim the digital assets. They argued, among other things, that customers did not fully comprehend the terms and conditions of service. The company was also under investigation in several states for breaching regulations. This could potentially void the terms of their usage.
The ruling does not necessarily mean that customers of Celsius will ultimately receive nothing. It does not conclude the possibility of further legal challenges in the crypto lender’s bankruptcy case concerning ownership of crypto deposits, Glenn noted.
Creditors can still file fraud or breach of contract claims against Celsius. According to the ruling, state regulators could argue that account holders’ contracts were invalidated due to being in contravention of state securities law.
“The Court does not take lightly the consequences of this decision on ordinary people, many of whom deposited significant savings on the Celsius platform,” Glenn wrote. “Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process.”
The ruling authorizes Celsius to sell stablecoins held by customers for around $18 million, while a few clients with non-interest bearing custodial funds have the right to claim their deposits. This ruling was only applicable to customers whose funds weren’t commingled with Celsius assets, but whose accounts weren’t large enough to attempt to recover money owed to other customers.
