Bankruptcy Judge: Celsius Owns Bulk of Customer Crypto Deposits

Celsius owns most of the customer deposits on its platform, a federal judge has ruled.

In his ruling Wednesday (Jan. 4) in the cryptocurrency lender’s bankruptcy case, Judge Martin Glenn concluded that “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.”

Glenn’s decision impacts 600,000 account holders who had $4.2 billion in assets held with Celsius at the time the company sought bankruptcy protection. The judge ruled that Celsius does not have the funds to repay those depositors in full.

The ruling determined that thousands of Celsius customers were “unsecured creditors,” meaning that these customers could have to wait to recover these losses.

Celsius had asked the judge last month for permission to sell $18 million worth of crypto to help the company cover its expenses.

Advisers to Celsius said the platform’s terms of service notified customers they were signing over the ownership of coins deposited in the accounts. However, some creditors argued the terms were ambiguous and had changed over time.

Glenn wrote Wednesday that he “empathizes with the frustration account holders may feel if they didn’t read or understand the specific terms of use.”

Last month, the judge ordered Celsius to return cryptocurrency in custody accounts — worth $44 million as of September — to customers.

“I want this case to move forward,” Glenn said. “I want creditors to recover as much as they possibly can as soon as they possibly can.”

Celsius declared bankruptcy on July 13 after freezing customer accounts, part of a string of cryptocurrency collapses last year.

As PYMNTS noted at the time, the company had made a name for itself in the crypto lending world by offering high returns and suggesting it posed less risk than traditional banks.

“But the company got into trouble by offering big yields to crypto depositors while making big loans that were backed by insufficient collateral,” PYMNTS wrote. “That left the company vulnerable to a market downturn.”

Celsius froze withdrawals, swaps and transfers in June, with members of the company’s board calling the move a “difficult but necessary” step to prevent a run and losses to customers.

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