Celsius Earn Customers Deemed Unsecured Creditors

More than $4B in cryptocurrencies that were deposited in so-called “Earn Accounts” of bankrupt crypto lender Celsius do not belong to the customers that made those deposits, Chief US Bankruptcy Judge Martin Glenn ruled Wednesday. 

Instead, those assets now belong to Celsius’ estate, according to the ruling. 

There were 600,000 Earn accounts on Celsius worth an estimated $4.2B as of July 10, 2022, according to court documents. 

According to Celsius’ terms of use, the company held “all right and title to such Eligible Digital Assets, including ownership rights.” Judge Glenn argues those terms – which the overwhelming majority of Earn customers agreed to – mean that the crypto they deposited in their Earn accounts became Celsius’ property, not theirs. 

“If the cryptocurrency assets in the Earn Accounts are owned by [Celsius], the Account Holders are unsecured creditors, and their recovery depends on the distributions to unsecured creditors under a confirmed chapter 11 plan, or under the Bankruptcy Code’s priority rules in the event of liquidation,” Glenn wrote in his order.

“A fundamental principle of the Bankruptcy Code is equality of distribution. There simply will not be enough value available to repay all Account Holders in full,” he wrote.

Celsius paused customer withdrawals in June 2022, citing ‘extreme market conditions,’ and filed for bankruptcy the following month.