A United States federal judge has ruled that Celsius Network owned all the digital assets deposited in its Earn accounts, not the users.
Now, U.S. Bankruptcy judge Martin Glenn has ruled in favor of the lender.
The landmark ruling has significant ramifications. For one, it sets a precedent for other digital asset lender bankruptcy proceedings, and there isn’t a shortage of these.
More significantly, it throws into question when (and if) most Celsius users will get their money back. Before filing for bankruptcy, Celsius held over $4.2 billion in assets for 600,000 clients in Earn accounts.
Judge Glenn’s ruling means that these clients are now categorized as unsecured creditors to Celsius. In the bankruptcy proceedings, they are prioritized below the customers who used non-interest-bearing accounts and the secured creditors.
In addition to ruling that Celsius owns the digital assets in Earn accounts, Judge Glenn gave the lender the green light to sell $18 million worth of digital assets and channel the funds to its operations.
“A rare point of agreement among all parties is that the Debtors’ liquidity is precipitously running out. The Debtors need to generate liquidity to fund these Chapter 11 cases and continue down the path either of a standalone plan reorganization, a sale, or even a liquidation plan,” the New York judge stated.
Big blow for Celsius Network customers
Judge Glenn, in his ruling, made it clear he understands that he had dealt a big blow to ordinary investors.
“The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform. Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process,” the judge wrote.
Judge Glenn previously ruled that Celsius must return $44 million to customers of its Custodial wallet. These customers were not earning any interest, and the company did not own their funds, he ruled.
The ruling will reverberate through other bankruptcy proceedings. BlockFi, another bankrupt lender, recently filed a motion seeking to only return funds to users of its non-interest-bearing accounts.
While Celsius was winning its current legal battle, its founder Mashinsky was sued by the New York Attorney General’s Office for fraud. NYAG Letitia James is seeking damages, disgorgement, and a ban on Mashinsky from conducting other business in the state.
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