Celsius Earn Program Funds Belong to Celsius, Judge Rules: What’s Next for Users?

The Celsius Network saga continues to unfold, and the latest chapter brings some tough news for users of its Earn program. In a recent ruling that has sent ripples through the crypto community, Judge Martin Glenn, overseeing the Celsius bankruptcy case, declared that the billions of dollars held in Celsius’s interest-bearing Earn program are legally the property of Celsius, not its users. Let’s break down what this means and what the implications are for everyone involved.

What Exactly Happened? Judge Glenn’s Ruling Explained

On January 4th, Judge Martin Glenn made a pivotal decision regarding the ownership of funds within Celsius’s Earn program. This program, designed to offer users interest on their crypto deposits, has been at the heart of the bankruptcy proceedings. The core of the issue revolved around the terms of service users agreed to when participating in the Earn program. According to the judge, these terms are crystal clear.

Here’s the key takeaway:

• The Ruling: Judge Glenn ruled that based on the terms of service, funds deposited into Celsius’s Earn program are considered assets of Celsius, not the depositors.
• The Amount: We’re talking about a significant sum – over $4 billion locked within these Earn accounts.
• Terms of Service: The judge emphasized that the terms of service explicitly state that Celsius holds “any and all rights and titles” to the digital assets in Earn accounts, including ownership.

In essence, the legal language in the terms of service has become the deciding factor. It’s a stark reminder of the importance of reading the fine print, especially in the often-unregulated world of crypto.

“Unambiguous” Terms: What Did the Judge Say?

Judge Glenn didn’t mince words, describing the terms of use as “unambiguous.” He underscored that because the funds are now legally considered Celsius’s property, their return to users is tied to the Chapter 11 bankruptcy restructuring plan. This is a critical point because it changes the game for Earn program users. Instead of being considered direct owners of their crypto in these accounts, they are now categorized as unsecured creditors.

What does this mean for you if you had funds in the Earn program?

Being an unsecured creditor in a Chapter 11 bankruptcy means:

1. Distribution Plan: Your ability to recover your funds now depends on the Chapter 11 plan that Celsius will propose and the court will approve.
2. Equitable Outcome?: The judge believes this approach will lead to a more equitable outcome for all creditors compared to a scenario where some account holders were deemed owners, potentially jumping ahead in the line for asset recovery.
3. Claims Process: Importantly, Judge Glenn highlighted that creditors still have the right to raise defenses and breach of contract claims. This means users can still argue their case during the claims resolution process, and they will have the opportunity to be heard.

What About the Stablecoin Sale?

Amidst these complex legal proceedings, Celsius had requested permission to sell stablecoins worth $18 million from the Earn program. This request was also addressed in the recent ruling. The judge granted Celsius the go-ahead for this sale, stating that it was a sound business decision.

Why was this sale allowed?

• Business Judgment: The court accepted Celsius’s argument that selling the stablecoins was a reasonable business decision to maintain operations during bankruptcy.
• Objections Overruled: Despite objections from the U.S. Trustee and state securities regulators who argued Celsius had enough liquidity, the sale was ultimately approved.

This stablecoin sale is a relatively small part of the larger picture, but it signifies Celsius’s ongoing efforts to manage its assets and navigate the bankruptcy process.

Timeline and Next Steps: What to Expect

The Celsius bankruptcy saga has been ongoing for months, and there are key dates to keep in mind:

• Bankruptcy Filing: Celsius officially filed for Chapter 11 bankruptcy on July 14th.
• Custodial Account Relief: Back in December, there was a positive development when Judge Glenn ordered the return of $44 million in cryptocurrency held in custodial accounts (separate from Earn accounts).
• Restructuring Plan Deadline: The deadline for Celsius to submit its Chapter 11 restructuring plan has been extended to February 15th. This plan will be crucial in outlining how Celsius intends to repay its creditors, including Earn program users.

What Does This Mean for the Future of Celsius Users?

The recent ruling is undoubtedly a setback for users who had hoped to directly reclaim their crypto from the Earn program. It underscores the risks associated with lending platforms and the importance of understanding the terms of service.

Key takeaways for Celsius Earn users:

• Unsecured Creditor Status: You are now considered an unsecured creditor in the Celsius bankruptcy.
• Chapter 11 Plan is Key: Your recovery prospects are heavily reliant on the Chapter 11 restructuring plan that Celsius will propose in February.
• Claims Process: Stay informed about the claims process and consider seeking legal advice to understand your rights and options.
• Risk Awareness: This situation highlights the risks inherent in using interest-bearing crypto accounts and the importance of due diligence and understanding platform terms.

Looking Ahead

The Celsius bankruptcy case is a complex and closely watched event in the crypto world. Judge Glenn’s ruling on the Earn program funds is a significant development, clarifying the legal ownership of these assets. While it may be disappointing news for Earn program users, the process is far from over. The focus now shifts to the Chapter 11 restructuring plan and the claims process, where users will have the opportunity to navigate the path towards potential recovery. As the February 15th deadline approaches, the crypto community will be watching closely to see what the next chapter holds for Celsius and its users.