A federal bankruptcy judge has ruled that crypto-assets deposited in Celsius Network’s “Earn” accounts do not belong to the customers. Instead, the funds in the interest-bearing accounts belong to the bankrupt cryptocurrency lending platform.

In a 45-page written decision, Martin Glenn, the chief US bankruptcy judge in the Southern District of New York, determined that Celsius is the owner of the $4.2 billion in crypto-assets. The verdict has set an important precedent that the platform’s users do not own their coins when using certain products and services.

Estate’s Ownership of Funds

Celsius’ Earn program allowed users to deposit crypto-assets such as Bitcoin, Ethereum, and Tether and get paid weekly with interest earned on them. Customers who parked their assets in Celsius’ lending service lost access to those funds in June when the company froze withdrawals, citing extreme market conditions.

Celsius had 600,000 accounts in its Earn program when it filed for Chapter 11 last summer, which brings the assets worth $4.2 billion in assets as of July 2022. Stablecoins accounted for nearly $23 million of the total as of September last year. The entire fund in question has now been declared the property of the estate.

Glenn wrote,

“The Court concludes, based on Celsius’s unambiguous Terms of Use, and subject to any reserved defenses, that when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates (the “Estates”).”

Last month, Celsius and its customers locked horns with customers in court over ownership of the deposited crypto assets as it wanted to sell about $18 million worth of stablecoins, the proceeds of which will be used to fund administrative costs for the next several months.

The latest court order claimed that Celsius “established a good business reason to permit the sale, thereby permitting the sale.” This move was, however, opposed by the state regulators and the US Trustee’s office.

Objection

While objecting to Celsius’s arguments, account holders of the Earn program argued that the terms of service for the accounts were “ambiguous” and that the ownership of the assets could not be demonstrated without considering additional evidence. This included numerous statements made by the former CEO of the company, Alex Mashinksy.

Judge Glenn, on the other hand, maintained that the sale of stablecoins will help Celsius fund its bankruptcy proceedings while adding that the company is quickly exhausting its available funds.

The ownership ruling comes almost a month after the bankruptcy judge ordered the embattled firm to return funds worth $44 million, which were not part of its yield-bearing accounts, to its customers.