A US federal bankruptcy judge ruled on Wednesday that cryptocurrency deposited by customers into the now-bankrupt Celsius Network lending platform belongs to the firm, hence ruling against thousands of customers in line for repayment.
Thanks to the ruling, Celsius Network, which announced bankruptcy back in July, now owns $4.2 billion in cryptocurrency from about 600,000 accounts deposited by users into its high-interest Earn program.
The program allowed customers to deposit various cryptocurrencies in return for weekly interest payments, with annual interest sometimes reaching 18%.
Approximately $23 million of the held cryptocurrencies consisted of stablecoins, and the ruling allows Celsius to sell about $18 million stablecoins that had been held in customers' Earn accounts.
According to US Bankruptcy Judge Martin Glenn in New York, the company is unable to fully repay those deposits.
Despite that, the ruling does not mean that Earn customers will get nothing, but they will be pushed significantly lower on the repayment list than secured creditors – although the number of those creditors remains undisclosed.
“If only some Account Holders prevail with their arguments that they own the cryptocurrency assets in their accounts, they hope to recover 100% of their claims, while most of the Account Holders are left as unsecured creditors and may recover only a small percentage of their claims,” a 45-page filing states.
Back in June, prior to declaring bankruptcy, Celsius froze withdrawals for customers amid “extreme market conditions,” now effectively gaining ownership of those accounts. Earn customers will hence be treated as unsecured creditors and the last ones to receive repayments.
Twelve US states and the District of Columbia had objected to Celsius' bid to claim the digital assets, according to Reuters. They stated that customers might not have understood the terms of service and that Celsius was under investigation in several states for violating regulations.
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