Celsius customers’ claims over assets in Earn accounts dismissed in New York

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A New York judge has dismissed motions from three Celsius Network clients who sought to lay a claim over assets held in Earn accounts. The judge ruled that the terms of use for the interest-bearing accounts were clear enough and that Celsius legally owns all the funds in these accounts.

Since Celsius filed for bankruptcy protection in July 2022, the ownership of the assets in its interest-bearing Earn accounts has been in contention. The legal battle between the defunct lender and its users culminated in a ruling this month in which the judge sided with Celsius. Citing the company’s Terms of Use, Judge Martin Glenn ruled that the lender owned the assets in the Earn accounts and allowed it to sell some assets to fund operations.

Three clients didn’t give up their quest to regain their assets and filed separate motions to reclaim their funds. Judge Glenn of the U.S. Bankruptcy Court for the Southern District of New York has once again ruled in favor of the lender, dismissing the three motions.

“For the reasons discussed in the Earn Opinion, as an Earn Account holder, the assets in Gallagher’s accounts are property of Celsius’s bankruptcy estates…Consistent with the Earn Opinion, Account Holders did not retain ownership of Earn Assets, but rather possessed a contractual right to have those assets returned by Celsius upon a request to withdraw assets,” read Judge Glenn’s ruling in a motion filed by Rebecca Gallagher, a former Earn account user.

Gallagher had argued that ex-CEO Alex Mashinsky had made misleading public statements that led her to believe she owned her assets in Earn accounts. Mashinky’s statements constituted oral modifications of the Terms of Use, she argued.

In addition, Celsius isn’t a bank and, as such, has no claim to ownership of her assets, she argued in her motion.

Judge Glenn noted that he empathizes with frustrated clients because they didn’t read or understand the Terms of Use.

“Frankly, though, the rules provide needed certainty and predictability required for modern commerce in the digital era. The law in the Second Circuit is clear that clickwrap contracts such as the Terms of Use are valid and binding,” the document read.

The judge dismissed two similar motions filed by Kulpreet Khanuja and Mark Benzaken, two other former Earn account users.

Last kicks of a dying lender—Celsius wants to issue IOU tokens

Start a company, build it on anti-establishment hype and HODLing speculation and make hundreds of millions of dollars, go belly-up, and propose issuing worthless IOU tokens to millions of investors who lost all their money. Sounds familiar?

Celsius is seeking to become the latest company to apply this tried-and-tested digital asset Ponzi scheme formula.

The lender proposed in court recently a plan to restructure the company to a “publicly traded recovery corporation.” It plans to issue creditors with locked assets above a yet-to-be-determined threshold with an IOU token known as the Asset Share Token (AST). According to the company’s lawyers, AST holders will hold the tokens if they want to earn dividends over time—dividends from what business, you must be asking.

Those who want to exit the Celsius fiasco can sell the AST tokens in the open market. This second option is meant to hoodwink the lender’s creditors into agreeing to the restructuring under the belief that they can sell the tokens and get back their money. But then again, who will buy worthless IOU tokens from a company that went under due to gross mismanagement and fraud?

Celsius isn’t the first digital asset company to pursue the IOU token route. Bitfinex, after its 2016 hack, issued similar tokens for every dollar lost by its users. The exchange got away with it, but this had more to do with the bull market in which companies got away with everything. In today’s bear market, investors are more discerning, and this band-aid solution will likely end badly for investors.

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