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January 5, 2023

Read Before You Click “Accept”: Judge Glenn Rules That Earn Account Crypto Assets are Property of Celsius’ Bankruptcy Estates and Not Customer Property


The “crypto winter” has caused several high-profile crypto bankruptcies. Among the many novel issues that arise in these bankruptcy cases, one in particular has been front and center: are crypto assets deposited into customer accounts property of the customer or property of the bankrupt crypto company’s estate?

The answer to this question has significant implications for a crypto company, its account holders/customers, as well as its other stakeholders.

In In re Celsius Network LLC, et al., Judge Martin Glenn was asked to decide this very issue in the context of determining whether Celsius could sell stablecoins held in Celsius’ Earn Accounts, and framed the issue as follows: are the Terms of Use a contract by which complete title and ownership of Earn Assets transferred from Earn Account Holders to Celsius when the Account Holders deposited cryptocurrency into their Earn Accounts?

In his January 4, 2023 Memorandum Opinion, Judge Glenn determined that Celsius’ “Terms of Use formed a valid, enforceable contract between [Celsius] and Account Holders, and that the Terms unambiguously transfer title and ownership of Earn Assets deposited into Earn Accounts from Account Holders to [Celsius].” Thus, the Earn Assets (cryptocurrency assets, including stablecoins) in the Earn Accounts became property of Celsius’ bankruptcy estates as of the bankruptcy filing.

In arriving at this conclusion, Judge Glenn noted the following:

  • Ownership of the crypto assets in the Earn Account is a contract law issue;
  • A valid, enforceable contract requires (i) mutual assent, (ii) consideration and (iii) intent to be bound;
    • Celsius’ Terms of Use are a “clickwrap” agreement which New York Courts “overwhelmingly” accept as sufficient to constitute mutual assent;
    • The Terms of Use clearly spell out the “benefit of the bargain;” and
    • While account holders may not have intended the effects of the contract, no evidence suggested that account holders lacked an intent to enter into a contract governed by the Terms of Use.
  • Updates to the Terms of Use constituted valid modifications to the contract that an account holder entered into when they created an account with Celsius;
  • Every version of Celsius’ Terms of Use, beginning with Terms Version 5, includes a clause that Account Holders “grant Celsius . . . all right and title to such Digital Assets, including ownership rights;” and
    • Terms Version 8 states (with emphasis added):

In consideration for the Rewards payable to you on the Eligible Digital Assets using the Earn Service . . . and the use of our Services, you grant Celsius . . . all right and title to such Eligible Digital Assets, including ownership rights, and the right, without further notice to you, to hold such Digital Assets in Celsius’ own Virtual Wallet or elsewhere, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and to use or invest such Digital Assets in Celsius’ full discretion. You acknowledge that with respect to Digital Assets used by Celsius pursuant to this paragraph:


3.         In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable, and you may not have any legal remedies or rights in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under any applicable laws;

  • Of the approximately 600,000 Earn Account Holders, 89% created accounts by first accepting Terms Version 5 or later, and 99.86% of the Earn Account holders accepted Terms Version 6 or a later version.

The consequence of the ruling on the Earn Account Holders, which the Court noted it did not take lightly, is that the Earn Account Holders are unsecured creditors of Celsius’ bankruptcy estates. To put the result into context, if the cryptocurrency assets were property of the Earn Account Holders, such Holders would be entitled to the return of those cryptocurrency assets. As unsecured creditors, the Earn Account Holders will have to share in the pool of assets available to unsecured creditors. If there ultimately is not enough value to repay all unsecured creditors (a likely result), the Earn Account Holders will likely recover less than 100%.

The decision, however, has some nuances. Judge Glenn did not rule on defenses that individual Earn Account Holders may have against the Terms of Use and also did not determine the ownership of assets in the Debtors’ Custody Program, Withhold Accounts, or Borrow Program. Finally, the decision also did not address the rights of any state or state agencies regarding whether Celsius violated state securities laws by marketing unregistered securities.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.