A judge overseeing bankruptcy proceedings for crypto lending firm Celsius Network has denied motions from three users with different claims on assets stuck since July.
In orders filed with United States Bankruptcy Court in the Southern District of New York on Jan. 25, Judge Martin Glenn denied a motion from Rebecca Gallagher, a Celsius claimant who argued her interest-bearing ‘Earn’ assets on the platform were “her property and not property of the bankruptcy estates” under the control of the debtors. The judge denied similar motions from Celsius account holders Mark Benzaken and Kulpreet Khanuja.
Motions from the three individuals included claims that Celsius’ terms of use did not allow for transferring their assets from the platform to control of the debtors in the event of bankruptcy. Gallagher and Khanuja both called out Alex Mashinsky by name, claiming the former Celsius CEO misled customers with public statements and said users would retain full ownership of their assets, respectively.
Judge Glenn said the court took the allegations against Mashinsky “seriously,” but denied all three motions. On Khanuja’s case, he said:
“Any claim that Celsius breached its contract with Khanuja would not affect the ownership of cryptocurrency deposited in Khanuja’s account. As the Earn Opinion explains, the cryptocurrency deposited in Earn Accounts became property of Celsius […] the cryptocurrency in Khanuja’s Earn Accounts was and remains property of the estate.”
Louise Abbott, a partner at United Kingdom-based firm Keystone Law, told Cryptox in December that one legal tactic available to FTX users — the exchange is also going through the bankruptcy process in the U.S. — would be to claim their crypto and fiat assets “remained their property at all times” and shouldn’t be under the control of the debtors’ estates. Though Abbott was referring to FTX funds donated to third parties, the recent rulings in the Celsius case suggested its terms of use granted the platform “all right and title to such Digital Assets, including ownership rights”.
Related: Bankruptcy judge orders $44M in crypto to be returned to Celsius customers
Celsius reported liquidity issues in June 2022 and blocked user withdrawals, citing “extreme market conditions.” The company later filed for bankruptcy in July. U.S. authorities have filed suit against Mashinsky for his role in the platform’s downfall for allegedly giving “false and misleading statements” to investors and hiding the firm’s “dire financial condition”.
