The crypto lending platform Celsius Network, which collapsed in summer 2022, is suing the users who withdrew their funds within 90 days before the collapse. They are said to have profited at the expense of the customers who were ultimately harmed and are repaying their crypto assets at their full current value. This is according to a recent press release.
Account holders who withdrew funds in the days leading up to Celsius' bankruptcy unfairly profited at the expense of other account holders, as fulfilling their withdrawal requests resulted in Celsius being unable to honor other withdrawals.
Mohsin Meghji, Celcius' Litigation Administrator
The Celsius Legal Affairs Administration accordingly now "intends to pursue recovery of the full value of the cryptocurrency transferred by these account holders during the Preference Period pursuant to the Bankruptcy Code."
The Celsius debacle
Celsius Network was a well-known platform where users could lend their Bitcoin and cryptocurrencies for returns. At its peak, Celsius managed over 20 billion US dollars and had around 1.7 million customers. In June 2022, as the crypto market came under increasing pressure, the service provider stopped payouts and finally filed for bankruptcy the following month.
It was clear from the outset that users could lose their cryptocurrencies forever in the event of bankruptcy. Accordingly, Blocktrainer.de repeatedly warned against using such service providers.
The company, which also launched its own token, attracted attention with further negative reports in the months that followed. In October, for example, Celsius published a 14,523-page document with the entire transaction history of users - including their real names. Celsius is currently in the process of restructuring and plans to pay out a large part of the sums lost at the time to the injured parties.
Now, however, those who were able to get their money to safety in time are to be hit - even if they only did so by chance or luck just before the collapse.
Bad news for customers who were able to save themselves
The current lawsuit is aimed at thousands of former customers who withdrew their funds between April 14 and July 13, 2022. Specifically affected are users who collectively transferred more than 100,000 US dollars away from Celsius immediately before the bankruptcy. Celsius is demanding this money back - but apparently not at the US dollar value of the crypto assets concerned at the time, but at current exchange rates. This is a huge problem in that the price of Bitcoin, for example, has roughly doubled since then.
The indignation of those affected is correspondingly great. One 𝕏 user, who claims to have been served with the lawsuit, understandably expressed his displeasure publicly.
Celsius Network officially sued me and thousands of innocent users in a New York court this week. [...] We are just normal people who used the platform normally, not insiders, not bad actors, and because we happened to take our money off the platform 90 days before they filed for bankruptcy, they are trying to recover all those funds and more because they are suing for the June 14, 2024 market rates, not the 2022 rates. WHAT THE HELL!!! They are asking for outrageous sums, basically my entire net worth is being sued for even though I did absolutely nothing wrong. At first I thought it was a scam and a rip off, but now that the lawsuit has actually been filed, I have to spend thousands [of dollars] to hire a lawyer.
@medx0
Criticism from other users also refers to the fact that Celsius is only unnecessarily incurring further legal costs as a result of this lawsuit, which in the end will cause all injured parties to suffer, as the recovery will not be successful according to them.
Prior to the lawsuit, Celsius had already reached a settlement with more than 1,500 affected users and recovered 100 million US dollars. The money that Celsius recovers is intended to benefit all victims.
A real catastrophe for those affected
If a bank or, in this case, a crypto lending platform makes a mistake and is unable to meet its payment obligations, it is not the fault of the customers who have put their money in safekeeping in good time, but the financial institution itself. Normally, a service provider should always be able to meet all payout requests in any amount. However, this is not even the case in the traditional banking system, as the bankruptcy of Silicon Valley Bank in 2023 following a bank run showed.
It is more common for insolvency administrators to reclaim funds that entities received immediately before the company went bankrupt. The aim is to treat those who withdrew their money 89 days before the bankruptcy and those who never got around to it in the same legal way.
It remains to be seen whether Celsius will be successful with its plan to recover the assets of the affected customers. If they really do have to repay the assets at current prices, this will certainly ruin some of those affected. After all, it is not certain that all of them have held on to their holdings to this day and taken the price gains with them, let alone that they still have any liquid assets at all.
In addition, it remains to be seen whether this - if it ends successfully for Celsius - will set a precedent for the collapse of other crypto service providers, in which the innocent can also be asked to pay afterwards in order to fill the insolvency estate.
In the case of Celsius, keeping the coins in self-custody and avoiding service providers that lure with high returns has once again proven to be the superior strategy in the Bitcoin market.
