The crypto lender Celsius filed for bankruptcy in early July, and creditors were hopeful that they would receive their funds back. However, the over half a million people that deposited money on Celsius might never get their money back after the judge involved in the bankruptcy proceeding said that the deposited funds belong to Celsius and not the depositors.
Judge says customer deposits to Celsius belong to the crypto lender
The judge in charge of the bankruptcy case is Martin Glenn, who said that the terms of use of the crypto lending firm showed that the crypto assets deposited to the platform were the lender’s property.
The recent ruling comes amid the lack of regulatory clarity in the growing cryptocurrency industry. Celsius was among the first crypto firms to fold amid the biting crypto winter caused by plunging digital asset prices. The lender filed for bankruptcy in July last year after halting withdrawals.
The recent ruling by Judge Glenn might not affect the FTX trial, given that the two companies had different terms of use. In a report by the Washington Post, Aaron Kaplan, a co-founder of a crypto firm, said that other platforms in the crypto space had the same terms of use as Celsius. Kaplan also added that customers needed to understand the risks involved when depositing funds to poorly regulated platforms.
The ruling could have far-reaching implications across the cryptocurrency industry. It says that the money in the accounts of 600,000 people at Celsius did not belong to them. The court has declared Celsius users to be unsecured creditors, and they will not be prioritized in the bankruptcy proceedings and might never receive their funds back. The ruling could also result in other crypto firms reviewing their terms of use.
New York AG files a lawsuit against Celsius
The recent ruling comes from a civil lawsuit filed against the co-founder of Celsius, Alex Mashinsky, by the New York Attorney General, Letitia James. The New York Ag accused Mashinsky of defrauding investors.
The lawsuit has also said that Mashinsky used “false and misleading representations to induce [customers] to deposit billions in digital assets” to the platform. The lawsuit wants Mashinsky to pay for damages and have him banned from founding any financial or other businesses in New York.
Celsius promised high-interest rates to investors to lure them into depositing funds to the platform. The lender offered interest rates of as high as 20%, which drove many people who did not know about crypto to deposit funds to the platform.
The New York AG also said that Mashinsky engaged in aggressive marketing strategies by appearing in interviews, blog posts, and livestreams. It adds that Mashinsky promised investors that the platform was a safe alternative to banks. However, he failed to disclose that Celsius engaged in risky investments.
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