In crypto, not everyone is a winner, and that is the case for the clients of the fallen Celsius project that last year caused an equal amount of pain as FTX did for us in 2022. In an incredibly upsetting move, a federal judge this week ruled that clients of Celsius are not privy to any of the assets sold in the bankruptcy court.
It turns out assets placed in the now-defunct crypto exchange’s high-interest “Earn Accounts” belong to Celsius, not the account holders, according to a Wednesday ruling from Judge Martin Glenn.
The decision came down to an “unambiguous provision” in one section of Celsius’ terms of use, wrote the judge. “All right and title to such Eligible Digital Assets, including ownership rights,” is held by Celsius, said version 8 of the company’s terms, which 99.86% of Earn Account holders agreed to, noted Glenn. Celsius’ incredibly shady terms of service also stated to signatories that “you may not have any legal remedies or rights” to get your money back.
More on Judge Glenn’s Celsius Ruling
In practice, Judge Glenn’s ruling effectively confirms that stance and means the company has no immediate obligation to repay about 600,000 investors amid the exchange’s ongoing bankruptcy proceedings. The more than $4.2 billion that was frozen in Celsius accounts last June doesn’t belong to the people who put it there, it’s the property of the company that squandered it.
Though technically, spurned Earn Account investors could still receive some sort of compensation from Celsius—the ruling means they’ll be last in line to do so.
“To be clear, this finding does not mean holders of Earn Assets will get nothing from the Debtors,” Glenn wrote. “The amount of allowed unsecured claims are subject to later determination in this case (through the claims allowance process) and may potentially include damages asserted by Account Holders.”
Further, Celsius customers could sue the company and claim that the terms they signed violated securities laws—but that’s no guarantee of repayment.
Always Read Fine Print For Financial Transactions
If nothing else, let this be a reminder to always read the fine print when it comes to major financial transactions (and not to transform your actual fiat currency into digital monopoly money). Though this specific ruling only applies to Celsius, it highlights a much larger issue within the wholly unregulated cryptoverse. Many other platforms have similar terms for account holders as Celsius did/does, Aaron Kaplan, a financial lawyer and crypto company owner told the Washington Post.
Celsius drew in customers with promises of absurdly high (read: too good to be true) 18+% interest rates, which it had to make increasingly risky maneuvers to fulfill. The company first halted withdraws and froze accounts in June 2022. And despite all of its attempts to reassure its users—the crypto network filed for Chapter 11 bankruptcy a month later amid a solvency crisis.
The crypto market lost $2 trillion in value between November 2021 and the summer of 2022. Celsius native token plummeted by more than 79% over the six months leading up to July 2022, and the exchange was holding a large chunk of its total funds in its own trashed coin. As a bonus: Celsius’ execs cashed out millions of funds right before they halted withdraws for everyone else.
More Investigations into Celsius
And if you think that all sounds sketchy and ponzi-esque, know that nearly every state regulatory body agrees with you. At least 40 states had opened investigations into Celsius by early September 2022. Just the other day, New York’s Attorney General announced a lawsuit against Celsius’ dethroned CEO, Alex Mashinsky, over allegations of misleading investors. Investors might not get their money back, but maybe Celsius and its executives will get their comeuppance.
Ladies and gentlemen, know what you’re investing in, do your homework and let’s hope this serves as yet another lesson in investing for everyone. Because we must be smarter during this crypto winter.
