There has been an ongoing vat of confusion surrounding the bankruptcy cloud around Celsius Network, from the company structure details, risk management policies and trading authority lines, to the very language defined in the customer/client accounts terms of agreement.
Just recently, Celsius motioned for $50 million worth of the total $225 million held in the Custody Program and Withhold Accounts to be released to owners.
The beleaguered crypto lender Celsius Network has filed a motion with the United States Bankruptcy Court yesterday to allow customers with digital assets held in certain accounts to be withdrawn.
*There’s a catch, however, as the motion will only apply to Custody and Withold Accounts and for custodied assets worth $7,575 or less in value.
Celsius has structured their Custody and Withhold Accounts, which essentially serve as storage wallets, in a way that still enables users to maintain legal ownership of cryptocurrency.
This ownership, however, is not extended to assets held in accounts that offer annual crypto earnings or borrowing services (Earn and Borrow accounts).
A group of Celsius Network custody wallet customers is suing the bankrupt lending platform in an effort to reclaim more than $22.5 million worth of funds.
In a new lawsuit filed on Wednesday, individual holders of more than 64 accounts with Celsius say they retained the title to all of their crypto assets held in the firm’s custody wallets and therefore are entitled to their return.
The account holders argue that Celsius cannot use their funds to pay off bankruptcy debts.
“In April 2022, the debtors [Celsius] created a self-titled ‘custody service’ where users entrusted their cryptocurrency to the debtors in a ‘custody wallet’ but retained title to such assets…
In June 2022, the debtors froze all withdrawals of cryptocurrency from their platform. Since that date and since the petition date, the debtors have not honored any withdrawals from any programs, including custody service, even though the custody assets – by the plain language of the debtors’ terms of use provide that title to custody assets always remains with the user.”
On Thursday, Celsius filed a motion with the same bankruptcy court seeking authority to permit certain customers to withdraw their cryptocurrency from their custody program. A hearing on the motion is scheduled for October 6th.
Celsius Network initially filed for bankruptcy back in mid-July, just weeks after it halted all customer transactions and withdrawals, blaming extreme market volatility.
The project’s native token CEL briefly collapsed from around $0.90 to as low as $0.09. It has currently mounted a recovery and is changing hands for $1.41 at time of writing.
Since the bankruptcy, the centralized finance firm has also been slapped with a class action lawsuit alleging it operated as a Ponzi scheme.
Furthermore, California’s Department of Financial Protection and Innovation issued Celsius a desist and refrain order over claims that the company violated the local Corporation Code.
The Celsius Community response to the motion has been mixed, with creditors happy that Celsius Network has conceded funds held in its “Custody Program and Withhold Accounts likely do constitute property of their estates.”
However, as tweeted by BnkToTheFuture.com CEO Simon Dixon — the community believes the amount Celsius wants to release is far short of what is equitable.
As Dixon points out, only $50 million of the $210 million held by 58,300 users in custody accounts is set to be released, with all funds above $7,575 which were transferred from the Earn Program and Borrow Program into Custody and Withhold accounts not included within the released amount.
The $7,575 amount is referred to as the “statutory cap” and Celsius is unable to avoid transferring amounts less than this total upon creditor requests as per section 547(c)(9) of the Bankruptcy Code.
The filing also mentions that an additional $15.33 million is held in Withhold Accounts by approximately 5,000 customers as of Monday.
To attain that $50 million figure, Celsius lawyers have distinguished between “Pure Custody/Withhold Assets” and “Transferred Custody/Withhold Assets,” with “Pure” assets those which were not transferred from the Earn or Borrow Programs. This division of funds has not been well received by community members.
In response to a Friday Twitter post from Celsius, countless community members have made it known that they want nothing short of all their funds back.
Celsius states that assets locked in the Earn and Borrow Programs are likely property of their estates, with transfers of these assets to Custody or Withhold accounts being described as “a transfer of the Debtors’ property to customers.”
Within the filing, Celsius states that the “relief sought in this Motion may not be supported by every customer or stakeholder, and that it may not go as far as some Custody Program customer and Withhold Account holders may wish.”
It suggests the motion is merely a “first step forward, and not the last word on, efforts to return assets to customers.”
The motion comes just one day after an ad hoc group of 64 custodial account holders filed a complaint alleging that title to custody assets “always remains with the user” as per the accounts’ terms of use, with the group seeking to recover more than $22.5 million worth of assets.
A hearing on the motion is scheduled to be held on Oct. 6, and as it stands, users have had their assets locked up on the platform for more than two months.
Check CEL Price Action
–Via: Celsius files to reopen withdrawals for a minority of customers
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