Troubled cryptocurrency lender Celsius Network has filed a motion with the U.S. Bankruptcy Court to permit $50 million worth of the total $225 million held in the Custody Program and Withhold Accounts to be released.
The motion will only be applicable to Custody and Withold Accounts and for Custodial Assets valued at $7,575 or less, so there is a catch. Custody and Withhold Accounts from Celsius, which effectively act as storage wallets, are designed in a way that still allows customers to retain legal ownership of their cryptocurrency.
However, this ownership is not extended to assets maintained in accounts that provide borrowing or annual crypto profits (Earn and Borrow accounts).
While creditors are pleased that Celsius Network has acknowledged that money kept in its “Custody Program and Withhold Accounts likely do represent the property of their estates,” the community’s reaction to the move has been divided.
The community, according to CEO of BnkToTheFuture.com Simon Dixon, believes Celsius wants to release considerably less money than is fair.
Only $50 million of the $210 million held by 58,300 customers in custody accounts is expected to be released, according to Dixon, and the sum excludes all funds over $7,575 that were transferred from the Earn Program and Borrow Program into Custody and Withhold accounts.
According to section 547(c)(9) of the Bankruptcy Code, Celsius cannot refuse to transfer amounts below the $7,575 total, which is referred to as the “statutory cap.”
The lawsuit also states that as of August 29, about 5,000 clients held an additional $15.33 million in Withhold Accounts. Celsius attorneys have made a distinction between “Pure Custody/Withhold Assets” and “Moved Custody/Withhold Assets” in order to arrive at that $50 million number, with “Pure” assets being those that were not transferred from the Earn or Borrow Programs.
The community members have not been pleased with this fund distribution. Numerous members of the community have stated that they want nothing less than their entire investment refunded in response to a tweet from Celsius on Twitter on September 2.
With transfers of these assets to Custody or Withhold accounts being referred to as “a transfer of the Debtors’ property to consumers,” Celsius asserts that assets locked in the Earn and Borrow Programs are likely property of their estates.
The remedy sought in the motion “may not be supported by all customers or stakeholders, and it may not go as far as some Custody Program customers and Withhold Account holders may like,” according to Celsius’ brief.
According to the motion, attempts to return assets to customers are still ongoing and this is simply a “first step forward.”
The motion was made just one day after an ad hoc group of 64 custodial account holders filed a complaint asserting that, in accordance with the terms of use of the accounts, title to custody assets “always remains with the user.” The group was seeking to recover assets totaling more than $22.5 million.
Users’ assets have been locked up on the platform for more than two months at this point, and a hearing on the request is due on October 6.
