Celsius’ custodial account holders filed a petition with a bankruptcy court asking for the lender to return their funds outside the proceedings. Celsius has asked the court that oversees the bankruptcy case of the crypto lender to approve the return of funds to a group of custodial account holders.
On Wednesday, the ad-hoc group filed a petition to the New York Bankruptcy Court in the Southern District of New York for a declaratory judgement to order Celsius to allow withdrawals from custodial accounts.
Celsius filed bankruptcy proceedings after the freezing of withdrawals in June. The company plans to restructure its operations to use the revenue from , a still-being built mining operation, to sustain itself.
According to the filing, 64 members of the group have at least $22.5million in cryptocurrencies. Celsius’s custody service is used for this purpose. It is distinct from the Unofficial Committee of Creditors, an organized group of Celsius customers.
According to the filing, the cryptocurrency of the group is held in custodial accounts and not the “Earn”, which generates yield. According to the filing, Celsius should have kept the funds in separate storage for its members. They retain title to the money. The filing claims state that the customers should be able receive their funds back from bankruptcy proceedings.
The filing stated that the Court had made it clear during various hearings, that Custody Assets were not property of the estate and should be returned to their users. “After discussions with the Debtors, their advisors, and Creditors’ committee and its advisors. Plaintiff was unable to get return of its Custody Assets. The Debtors have not lifted the freezing on Plaintiff’s Custody accounts.
According to the account holders, Celsius still holds the same type of cryptocurrency that they have deposited and the funds are separate from the rest. Accordingly, the firm has the capability to allow them withdrawal their funds. However, it has not done so.
“The Debtors’ refusal to honor all Custody Assets withdrawals has caused tremendous hardship for their users,” the filing stated. This was reflected in hundreds of letters that were filed on the docket, as well as statements by Chapter 11 Cases users. The filing stated that the Debtors should stop holding Custody Assets in Chapter 11 Cases. They cannot use them to pay creditors’ claims.
Further explanations are provided in the filing to clarify the difference between Celsius’ custodial account holders and Earn customers.
This group was created ad-hoc and took several weeks to put together. CoinDesk reported that some customers believed Celsius’ law firm Kirkland & Ellis could have filed for the funds to be returned by Wednesday, Aug. 1.
A hearing will be held on September 1st to discuss the motion as well as other issues.