Celsius Network estate owns crypto in earn accounts, judge says

By Sarah Lizee

Olympia, Wash., Jan. 4 – The judge overseeing Celsius Network LLC’s Chapter 11 bankruptcy case concluded that the cryptocurrency assets remaining in earn accounts on the company’s petition date are property of the debtor’s estate, according to a memorandum opinion and order filed Wednesday in the U.S. Bankruptcy Court for the Southern District of New York.

This is a central issue in Celsius’ case. The debtors and official committee of unsecured creditors agreed that the assets belong to the estates, while many earn account holders argued that they own the cryptocurrency assets and that those assets should be returned to them promptly.

Judge Martin Glenn said Wednesday that, based on Celsius’ unambiguous terms of use, and subject to any reserved defenses, when the crypto assets were deposited into earn accounts, those assets became Celsius’ property, and the assets remaining in the earn accounts on the petition date became property of the estate.

At the petition date, Celsius had about 600,000 accounts in its earn program. The accounts held crypto assets with a market value of about $4.2 billion as of July 10.

Included in the earn accounts at the petition date were stablecoins, valued at $23 million as of September.

If the cryptocurrency assets in the earn accounts are owned by the debtors, 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.

As previously reported, Celsius has filed a motion seeking authority to sell about $18 million worth of stablecoins in order to extend its liquidity runway.

Judge Glenn said that the debtors may sell the stablecoins outside of the ordinary course of business.

“The court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform,” he said in the opinion, noting also that creditor’s rights with respect to various defense to and breach of contract claims are reserved.

“Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process,” he said.

The Hoboken, N.J.-based cryptocurrency lending platform filed bankruptcy on July 13 under Chapter 11 case number 22-10964.

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