About 600,000 accounts that included assets worth $4.2 billion when Celsius filed for bankruptcy in July are impacted by the decision made by U.S. Bankruptcy Judge Martin Glenn in New York. Glenn wrote that the corporation does not have the money to completely reimburse such deposits.
According to a 45-page document submitted on Wednesday to the U.S. Bankruptcy Court Southern District of New York, the judgment grants Celsius possession of the $4.2 billion in cryptocurrencies that customers invested into its high-interest Earn program.
Remarkably, the crypto lending company failed in July 2022, a month after suspending withdrawals due to deteriorating market conditions. The platform had assets of $4.2 billion in consumer cryptocurrency at the time and liabilities worth $5.5 billion.
Read Also: GM Overtakes Toyota As US Car Sales Leader
According to CNBC.com, Celsius acts like a bank in that it offers customers yield, sometimes as high as nearly 19%, if they deposit their crypto with the company. The firm then lends that crypto out to others willing to pay a high interest rate to borrow. Then it tries to pocket that money in order to give the yield back to customers.
Stone founded a company called KeyFi which specialized in crypto trading strategies. Celsius and KeyFi cut a “handshake deal” whereby the latter firm would “manage billions of dollars in customer crypto-deposits in return for a share of the profits generated from those crypto-deposits,” the lawsuit alleges
From August 2020, Celsius began “transferring hundreds of millions of dollars in crypto-assets” to Stone and his team, according to the lawsuit. Celsius set up a wallet on the Ethereum blockchain referred to as “0xb1.” That’s where the company sent the assets Stone was to deploy, the lawsuit claims.
A relatively small number of Celsius clients with various types of accounts were granted the right to receive their deposits returned after the company’s insolvency, according to Glenn’s judgment in December.
This case might serve as a model for how consumers’ bitcoins will be handled in American bankruptcy procedures.