Celsius filed to reopen withdrawals for a minority of customers as the troubled crypto lender filed a request with the United States Bankruptcy Court Wednesday to allow consumers with digital assets kept in specific accounts to withdraw them.
However, there is a catch: the motion will only apply to Custody and Withold Accounts, as well as custodied assets valued at $7,575 or less.
Celsius has designed their Custody and Withhold Accounts, which effectively function as storage wallets, in such a way that customers may retain legal ownership of cryptocurrency.
However, this ownership does not apply to assets maintained in accounts that offer yearly crypto profits or borrowing services (Earn and Borrow accounts). In any case Celsius filed to reopen withdrawals for a minority of customers.
The reaction to the motion has been varied, with creditors pleased that Celsius Network has admitted that monies kept in its “Custody Program and Withhold Accounts likely do represent property of their estates.”
However, as BnkToTheFuture.com CEO Simon Dixon stated, the community feels the amount Celsius plans to release is far insufficient.
#Celsius currently stating that those that were moved to custody 90 days before filing should be withheld. Custody is now $210m & they want to release $50m. They want to reserve the rest for clawbacks. They believe all earn funds belong to #Celsius ? OPINION This is illegal bank https://t.co/efGb3XPU2b
— Simon Dixon (Beware Impersonators) (@SimonDixonTwitt) September 1, 2022
According to Dixon, just $50 million of the $210 million held in custody accounts by 58,300 customers is expected to be released, with any monies exceeding $7,575 moved from the Earn Program and Borrow Program into Custody and Withhold accounts not included in the released total.
The $7,575 figure is known as the “statutory cap,” and Celsius is unable to avoid transferring sums less than this number in response to creditor requests under Bankruptcy Code section 547(c)(9).
As of Aug. 29, an additional $15.33 million was held in Withhold Accounts by nearly 5,000 clients, according to the filing.
Celsius attorneys have divided between “Pure Custody/Withhold Assets” and “Moved Custody/Withhold Assets” to arrive at the $50 million number, with “Pure” assets being those that were not transferred from the Earn or Borrow Programs. This distribution of monies has not been warmly welcomed by the community.
In reaction to Celsius’s Sept. 2 Twitter message, some community members have said that they want nothing less than all of their monies returned.
Kirkland (your counsel) already asserted Custody assets are not the property of Celsius. Doing anything besides releasing those assets in full is a complete violation of your TOS, as is your creation of new tiers out of thin air like “Pure Custody” which has no legal standing. ?
— johnnyBuz (@jBuzMSC) September 1, 2022
Celsius claims that funds locked in the Earn and Borrow Programs are likely estate property, and transfers of these assets to Custody or Withhold accounts are regarded as “a transfer of the Debtors’ property to consumers.”
Celsius admits in the filing that the “relief requested in this Motion may not be supported by every customer or stakeholder, and may not go as far as certain Custody Program customers and Withhold Account holders may like.”
It implies that the move is just a “first step forward, not the final word on attempts to restore assets to customers.”
The petition comes only one day after an ad hoc group of 64 custodial account holders filed a complaint saying that, under the terms of the accounts, title of custody assets “always stays with the user,” with the group trying to reclaim more than $22.5 million in assets.
A hearing on the motion is planned on Oct. 6, and users’ assets have been locked up on the platform for more than two months.
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