Crypto lender Celsius, which is just over a month into bankruptcy proceedings, filed to return custody holders' funds to them early Thursday, ahead of a separate hearing to address ongoing questions about its efforts to restructure and relaunch its operations.
According to the filing, Celsius has about 58,300 users who collectively deposited over $210 million with its custody and withhold, with 15,680 customers holding "Pure Custody Assets" worth around $44 million. The Bankruptcy Court for the Southern District of New York, which is overseeing the case, scheduled a hearing for Oct. 6, 2022 to discuss the matter.
Celsius filed for bankruptcy protections in July after halting all withdrawals in June. The crypto lender's customers have written numerous letters to the court explaining the hardships this has imposed on them, with several asking the court to have Celsius just re-open withdrawals and liquidate its own assets if need be to make customers whole.
Celsius' filing comes a day after an organized group of 64 customers claiming around $25 million in custody holdings also petitioned the court for their funds back.
The argument is that unlike Celsius customers using its Earn or Borrow products, customers with custodial accounts still maintain ownership of their crypto assets. Celsius is merely acting as the storage provider. Therefore, these funds belong to the customers, not to Celsius' estate.
"Following their analysis, the Debtors have identified significant cryptocurrency assets that they do not believe are property of their estates, and as to which the Debtors do not believe that they have any colorable causes of action under applicable law," the filing said. "Accordingly, the Debtors believe it is fair and appropriate to permit customers to withdraw those cryptocurrency assets at this time. By this Motion, the Debtors seek authority to permit certain customers to withdraw their cryptocurrency from the Custody Program and Withhold Accounts—in accordance with procedures and other conditions set forth in this Motion."
Celsius is filing for a narrow re-opening of withdrawals, saying not every customer would be eligible.
"For all Withdrawable Assets, the Debtors need to consider the extent to which they may hold a right to setoff against obligations owed to customers, including the customers’ obligation to repay loans under the Borrow Program. Accordingly, the Proposed Order carves out from the relief the reopening of withdrawals for any customer with any outstanding loans under the Borrow Program," the filing said.
