According to the attorneys of Celsius, the bankrupt crypto lender, user funds belonged to the corporation and not the user.
According to the lawyers for the company, the 1.7 million registered users of Celsius from more than 100 countries relinquished ownership of the cryptocurrency they deposited into Earn and Borrow accounts.
On July 18, lawyers from the Kirkland law firm led by Pat Nash provided details of how retail customers with Earn and Borrow accounts transferred the title of their coins to the company in accordance with its terms of service (ToS). In light of this, Celsius is free to “use, sell, pledge, and rehypothecate those currencies.”
However, whether Custody account holders retain title to their assets has become a legal enigma. According to the Celsius ToS, the company is not permitted to use currencies in Custody accounts without user consent. However, lawyers questioned whether this was applicable to the cryptocurrency that the company currently possessed. They posed the following questions after providing an outline of the case:
“Are the crypto assets in Celsius’ possession property of the estate? Is the answer to this question different for crypto assets held under the Custody vs. the Earn program?”
For non-accredited US investors, the Custody program was introduced in April after some US states filed cease and desist orders over Celsius’ Earn program.
On June 13 it halted withdrawals for all users, and on July 13 it stopped providing new loans.
In a tweet on July 18, attorney David Silver summarized Celsius’s claim to users’ money. Users should “stop thinking of it as your crypto,” he advised because everything officially belongs to the company.
Nash asserted that Celsius users would be “interested in riding out this crypto winter” and let Celsius retain assets rather than sell, according to a tweet from Financial Times reporter Kadhim Shubber. Users would have the chance to “realize their recovery through an appreciation in the crypto macro environment,” he continued.
In order to stay afloat, Celsius essentially wants to hold off on selling until the market improves, then repay consumers with assets that are more valuable.
In order to pay off debts, the company also asserts that it can sell Bitcoin (BTC) that it mines through a subsidiary mining operation. David Silver had doubts about the assertion made by Celsius CEO Alex Mashinsky in a bankruptcy declaration that his company intended to generate roughly 15,000 BTC through 2023.
After the hearing was over, Silver appeared on Twitter Space. Approximately one minute and seven seconds into the chat, he said that Celsius’s claim to be a Bitcoin mining company is deceptive.
“Can you imagine right now that Patrick Nash, basically, and the Kirkland lawyers have now told you that Celsius is simply a Bitcoin mining company? Because that’s all fluff.”
