In essence, user funds belonged to the corporation and not the user, according to the bankrupt crypto lender’s attorneys, with perhaps one significant exception.
The 1.7 million registered users of Celsius from more than 100 countries relinquished ownership of the cryptocurrency they deposited into Earn and Borrow accounts according to the lawyers for the company.
Lawyers from the Kirkland law firm led by Pat Nash explained how retail consumers with Earn and Borrow accounts transferred the title of their coins to the company in accordance with its terms of service at the first bankruptcy hearing for Celsius on Monday (ToS). In light of this, Celsius is free to “use, sell, pledge, and rehypothecate those coins.”
The legality of whether Custody account holders retain ownership of their assets, though, has come into dispute. According to the Celsius ToS, the company is not permitted to use currencies in Custody accounts without user consent.
However, lawyers questioned whether this was applicable to the cryptocurrency that the company currently possessed. They posed the following questions after providing an outline of the case:
“Are the crypto assets in Celsius’ possession property of the estate? Is the answer to this question different for crypto assets held under the Custody vs. the Earn program?”
For non-accredited American investors, the Custody program was introduced in April after some states issued cease and desist orders over the Celsius’ Earn program.
On June 13, Celsius stopped all users’ incentives and withdrawals, and they have subsequently stopped margin calls, liquidations, and the issuance of new loans.
In a Monday tweet, attorney David Silver summarized Celsius’s claim to consumers’ money. Users should “stop thinking of it as *your* crypto,” he advised, because everything officially belongs to the company.
In order to stay afloat, Celsius essentially wants to hold off on selling until the market improves, then repay consumers with assets that are more valuable.
The company also asserts that it can sell Bitcoin (BTC) that it mines through a subsidiary mining operation to pay off debts. In a bankruptcy filing statement, Celsius CEO Alex Mashinsky confirmed that his company intended to produce roughly 15,000 BTC through 2023.