Celsius files to reopen withdrawals for a minority of customers

Published at: Sept. 2, 2022

Beleaguered crypto lender Celsius Network has filed a motion with the United States Bankruptcy Court yesterday to allow customers with digital assets held in certain accounts to be withdrawn.

There’s a catch, however, as the motion will only apply to Custody and Withold Accounts and for custodied assets worth $7,575 or less in value.

Celsius has structured their Custody and Withhold Accounts, which essentially serve as storage wallets, in a way that still enables users to maintain legal ownership of cryptocurrency.

This ownership however is not extended to assets held in accounts that offer annual crypto earnings or borrowing services (Earn and Borrow accounts).

The community response to the motion has been mixed, with creditors happy that Celsius Network has conceded funds held in its “Custody Program and Withhold Accounts likely do constitute property of their estates.”

However, as tweeted by BnkToTheFuture.com CEO Simon Dixon — the community believes the amount Celsius wants to release is far short of what is equitable.

#Celsius currently stating that those that were moved to custody 90 days before filing should be withheld. Custody is now $210m & they want to release $50m. They want to reserve the rest for clawbacks. They believe all earn funds belong to #Celsius OPINION This is illegal bank https://t.co/efGb3XPU2b

— Simon Dixon (Beware Impersonators) (@SimonDixonTwitt) September 1, 2022

As Dixon points out, only $50 million of the $210 million held by 58,300 users in custody accounts is set to be released, with all funds above $7,575 which were transferred from the Earn Program and Borrow Program into Custody and Withhold accounts not included within the released amount.

The $7,575 amount is referred to as the “statutory cap” and Celsius is unable to avoid transferring amounts less than this total upon creditor requests as per section 547(c)(9) of the Bankruptcy Code.

The filing also mentions that an additional $15.33 million is held in Withhold Accounts by approximately 5,000 customers as of Aug. 29.

To attain that $50 million figure, Celsius lawyers have distinguished between “Pure Custody/Withhold Assets” and “Transferred Custody/Withhold Assets,” with “Pure” assets those which were not transferred from the Earn or Borrow Programs. This division of funds has not been well received by community members.

In response to a Sept. 2 Twitter post from Celsius, countless community members have made it known that they want nothing short of all their funds back.

Kirkland (your counsel) already asserted Custody assets are not the property of Celsius. Doing anything besides releasing those assets in full is a complete violation of your TOS, as is your creation of new tiers out of thin air like “Pure Custody” which has no legal standing.

— johnnyBuz (@jBuzMSC) September 1, 2022

Celsius states that assets locked in the Earn and Borrow Programs are likely property of their estates, with transfers of these assets to Custody or Withhold accounts being described as “a transfer of the Debtors’ property to customers.

Within the filing, Celsius states that the “relief sought in this Motion may not be supported by every customer or stakeholder, and that it may not go as far as some Custody Program customer and Withhold Account holders may wish.”

It suggests the motion is merely a “first step forward, and not the last word on, efforts to return assets to customers.”

The motion comes just one day after an ad hoc group of 64 custodial account holders filed a complaint alleging that title to custody assets “always remains with the user” as per the accounts’ terms of use, with the group seeking to recover more than $22.5 million worth of assets.

A hearing on the motion is scheduled to be held on Oct. 6, and as it stands, users have had their assets locked up on the platform for more than two months.