Another depressing day has come to the crypto world. The legal team for the defunct cryptocurrency lender Celsius asserted that customer money belonged to the company, not the client. The burden of Celsius’ downfall will fall on retail customers, according to the bankruptcy filings. Lawyers for the organization claim that registered customers from more than 100 different nations relinquished ownership of their bitcoin deposits in Earn and Borrow accounts.
The lending network submitted a Chapter 11 bankruptcy petition to the Southern District of New York on Thursday. This is more than a month after it stopped accepting client withdrawals due to unusually challenging market conditions. The bitcoin company did a great job of unfairly treating its clients.
At the first bankruptcy hearing for the firm on 18 July 2022, everything went wrong for the investors. Lawyer Pat Nash of Kirkland outlined how, in accordance with Earn and Borrow’s terms of service (ToS), retail consumers having accounts gave the company the title to their cryptocurrencies. The entity may use, sell, pledge, and rehypothecate those coins as it sees fit as a result.
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?”
Yet another dig at Celsius situation
“Not your crypto, not your keys.” Since MtGox’s demise years ago, this tagline has been repeated many times. But it seems like the warning came at the right time once more. After legal action a few days ago, economists warned that the platform’s investors might be let down. Experts claim that Celsius is more of an unregulated bank than a lender of crypt- assets.
Jameson Lopp, the Bitcoin advocate, has also expressed his disappointment on his Twitter profile.
Furthermore, for non-accredited American investors, the Custody programme was introduced in April after some states issued cease and desist orders over Celsius’ Earn programme.
On 13 June 2022, Celsius stopped all users’ incentives and withdrawals, and they subsequently stopped margin calls, liquidations, and the issuance of new loans.
In a tweet on 19 July 2022, attorney David Silver summarised Celsius’s claim to consumers’ money. Users should “stop thinking of it as your crypto,” he advised because everything officially belongs to the company.
However, in an effort to mend fences with customers who have sent hate mail and threats to business employees, Celsius is leveraging the mining operation. As a result of the initiative, it is also taking asset sales and other third-party investment opportunities into consideration.