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Celsius bankruptcy judge ruling says account holders do not own their accounts

Celsius bankruptcy judge ruling says account holders do not own their accounts
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More than half a million people who deposited funds with collapsed crypto lender Celsius Network have been dealt a major blow in their hopes of getting their money back as the judge in the company’s bankruptcy case ruled that the money went to Celsius and not to the depositors heard.

The judge, Martin Glenn, found that Celsius’ terms of service — the lengthy contracts that many websites post but few consumers read — meant that “the cryptocurrency assets became the property of Celsius.”

The ruling underscores the Wild West character of the unregulated crypto industry. On Thursday, New York Attorney General Letitia James sought some sort of injunction, or at least legal action, against Celsius founder Alex Mashinsky, whom she accused in a lawsuit of defrauding hundreds of thousands of consumers.

Crypto fortunes have plummeted in recent months since Celsius became the first major crypto platform implode Last year, its bankruptcy in July froze at least $4.2 billion for 600,000 Americans, according to court documents, and that was a premonition collapse of FTX four months later.

And while Glenn’s ruling doesn’t affect FTX, whose terms of service were different, some analysts saw the ruling spread beyond Celsius.

“There are many other platforms with terms of service similar to Celsius,” said Aaron Kaplan, an attorney at finance-focused law firm Gusrae Kaplan Nusbaum and co-founder of his own crypto firm. Clients need to “understand the risks they are taking by depositing their wealth on under-regulated platforms,” ​​he said.

James’ lawsuit, meanwhile, alleged that Mashinsky “used false and misleading representations to induce [customers] to deposit billions of dollars in digital assets.” The lawsuit seeks unspecified damages from Mashinsky and bar him from a variety of financial and other work in New York.

A spokesman for Celsius, Luke Wolf, said Mashinsky is no longer involved in running the company. Mashinsky did not respond to a message asking for comment.

For years, Celsius promised people extravagant interest rates near 20 percent in some kind of fantasy version of a real bank, prompting many who had no interest in crypto to enter the market.

The suit says Mashinsky was the reason. “In hundreds of interviews, blog posts and live streams,” it says, “Mashinsky touted Celsius as a safe alternative to banks while hiding that Celsius actually pursued risky investment strategies.”

Krypto’s Frozen Mystery: The Fate of Billions of Celsius Deposits

Mashinsky was known for his regular online questions and answers “Ask Mashinsky Anything” and T-shirts with messages like “Banks Are Not Your Friends”. Mobs of fans on YouTube and Twitter hailed the cult of “The Machine,” as it was dubbed. If FTX Sam Bankman Fried While being the public face of crypto in the halls of Washington, Mashinsky has often been the most prominent icon for ordinary investors.

The suit portrayed a person intent on portraying himself as a hero to the bankless and the working class, when in fact much of those people’s money went to fund high-risk investments.

“Billing himself and his company as a modern-day Robin Hood, Mashinsky boasted that Celsius ‘brings yields… to the people who would never make it themselves, [and] we take it from the rich,'” said the suit. “Those promises were false.”

However, according to the bankruptcy court, there may be a limit to what the legal system can do if crypto companies are smart enough to protect themselves. Investors and a number of states that have joined its bid say the language in the rights it grants to Celsius was at least “ambiguous.” But Glenn disagreed.

Celsius’ attorneys Joshua Sussberg and Patrick J. Nash Jr. and creditors’ attorneys Gregory Pesce and Andrea Amulic did not respond to requests for comment.

The bankruptcy decision specifically focused on whether Celsius can now sell $18 million in so-called stablecoins, a type of virtual currency, as part of the reorganization to maintain solvency. But its impact is much greater. By ruling that the money in the accounts did not actually belong to the 600,000 account holders, the court was essentially saying they are now just unsecured creditors. And “there just won’t be enough value to pay them back,” Glenn wrote.

The impact could even go beyond that, affecting other crypto platforms with harsh language in the fine print – causing problems for customers in the event of a collapse.

“This just begs another question about how difficult it is to transact in the Wild West of crypto,” said Brian Marks, who teaches business and business law at the University of New Haven’s Pompea College of Business and who researched the Celsius case . “I wouldn’t be surprised if other companies would revisit their terms and conditions afterwards.”

The connections between crypto companies are enormous, and the failure of one company can impact the other even months later. On Thursday, crypto lender Genesis said it would lay off 30 percent of its staff, in part as a result of a loan to FTX sister company Alameda Research.

Celsius creditors are also affected by the FTX bankruptcy. Mashinsky’s previous firm, according to the New York lawsuit, had loaned Alameda $1 billion, which it secured with FTX’s token FTT.

“The value of the FTT has since collapsed by about 95%,” it said, “resulting in Celsius holding near-worthless collateral.”

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