US Ruling finds crypto-assets held by Celsius to be property of the company
Updated: Jan 9
A potentially significant ruling has been made in the Celsius Network's bankruptcy proceedings finding that customers do not own the tokens the subject of those proceedings. The ruling impacts about 600,000 accounts that held assets valued at US$4.2 billion when Celsius filed for Chapter 11 bankruptcy protection.
The bankruptcy trustees had sought orders from the Court permitting the sale of stablecoins held by the company, and as part of that the published decision, the Court found that the assets held by the company were owned by the bankrupt company, and not customers themselves.
you grant Celsius . . . all right and title to such Eligible Digital Assets, including ownership rights, and the right, without further notice to you, to hold such Digital Assets in Celsius’ own Virtual Wallet or elsewhere, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets ... in Celsius’ full discretion.
A number of interested parties made objections and submissions, including over a dozen US states and Celsius customers (with petitions of hundreds of signatures submitted). Those objecting sought to attack the contract, raising various arguments including that:
There were oral variations of the contract by Mr Mashinsky;
The description of "loans" by customers meant that legal title to the crypto had not moved;
That the contract lacked consideration;
The transfer of assets was obtained via lengthy and confusing terms and conditions; and
If a transfer of asset ownership had occurred, there would have been taxable events for customers.
On the question of loans the Court said:
And as a result the Court found there was a valid contract between Celsius customers and Celsius and that the contract terms unambiguously transferred all right and title of digital assets to Celsius. The Court specifically did not rule on any claims customers might make against the company or Mr Mashinsky relating to fraud, and the decision is not arising from a fully litigated hearing, so it should be kept in that context. This decision is not likely to have any bearing on any FTX cases, as the FTX terms and conditions expressly did not transfer the ownership of customer assets. Many in the crypto world have been pressing for exchanges to show "proof of reserves" following the collapse of Celsius and FTX to give customers comfort that their assets are in fact held by the exchange.
The decision is interesting as it adds to the growing body of caselaw which recognizes that crypto-assets are both property, and are capable of being held and transferred as property, and to giving some guidance as to other insolvency situations which must deal with digital assets. It also serves as a reminder to users to read the terms and conditions they are agreeing to when putting money on the line.
The decision is here: