Who owns the cryptocurrency anyway?  |  Troutman Pepper - Tech Tribune France

Who owns the cryptocurrency anyway? | Troutman Pepper – Tech Tribune France

On July 18, “Not Your Keys, Not Your Coin” took on a whole new meaning for bankrupt crypto exchange clients Celsius Network LLC, which filed Chapter 11 in US bankruptcy court. Southern District of New York. During today’s first session, lawyers explained the debtor’s view that the cryptocurrency deposited on the exchange belongs to the percentile, and not to the depositors. They noted the terms of use of Celsius’ “earn rewards program” (earning program) in which retail customers can place cryptocurrencies into interest-earning accounts, which Celsius then collects to fund lending, negotiation, and more. Subject to Celsius’ Terms of Service, “all rights and title” to Earn coins are transferred to Celsius, and Celsius is free to use, sell, pledge, and re-mortgage these coins.

In other words, according to Celsius’ attorney, the Earn Program coins are the property of the bankruptcy estate,[1] Depositors who thought they were still the owners of those coins are generally just unsecured creditors. The extent of the shock was reflected in the dozens of angry and infidel letters that were filed in Celsius’ bankruptcy case.

Coins in the deposit program


Notably, a very small subset of the coins on the Celsius platform in the Custody service (about 4% of the total coins on the exchange, valued at about $180 million at the time of filing) may be treated differently in the event of bankruptcy. A little history is needed for context: As detailed here, in 2021 Celsius was subject to several cease-and-desist measures by government regulators, with each claiming that Celsius was illegally offering unregistered titles through Earn’s own program out. After initial resistance, in April 2022, Celsius revealed a new custody program whereby depositors could store digital assets but would not earn rewards or monetary compensation. New transfers made by unaccredited investors in the US on or after April 15 will be automatically deposited. (Coins deposited by unaccredited US investors before April 15th are placed in the Earn Program and can remain there until transferred by the depositors.)

The terms of use of the custodian service stipulate that the ownership of the documents deposited therein remains with the customer and not no Celsius has granted the right to use, sell, pledge and re-mortgage these coins. The Terms of Service are not perfect (or quite clear) and do not necessarily state the slam dunk status of Custody account holders. For example, they give Celsius the right to set off reciprocal debts with deposited coins, which is more consistent with the creditor relationship, and warn that depositors can be treated as unsecured creditors in the event of bankruptcy. But the language is, at least, more suitable for depositors than Earn’s terms of service.

The state of Custody Account coins will likely reach its climax in a fairly short time, as hundreds of Custodian Depositors have organized themselves into an ad hoc committee and retained the services of attorneys to tackle the issue. If they succeed in obtaining a judgment that their exhibits are not the property of a bankruptcy estate, they will be in a good position to demand the immediate return of those exhibits.[2]

Earn . coins

So where does that leave Earn depositors – especially unaccredited investors who arguably shouldn’t have had access to unregistered securities in the first place? Should they succumb to being treated like general unsecured creditors who have to wait months or years for the distribution to be in fiat currency and (even worse) based on the low value of their crypto assets on the date of the bankruptcy petition?

not necessarily.

On the other hand, Earn’s terms of use are somewhat ambiguous: while they speak in terms of transfer of ownership and ownership to Celsius, they also explicitly state that depositors only enter into “indefinite loans” for their digital assets to a degree Celsius. The loan does not usually result in a change of ownership. If I loan my car indefinitely to my teenage daughter, she can use the car to do a number of things, but she doesn’t get a bond for it. Or, in a more similar case, I could enter into a mortgage agreement to calculate a margin that would allow my broker to lend my shares to short sellers, but that doesn’t make him the owner of the shares. Depositors of the program may be able to make similar arguments regarding putting their coins in the hands of centile depositors.

Similarly, New York law considers the substance of the relationship; The words used to describe it are not decisive. Celsius expressly disclaims any fiduciary duty to depositors in the Terms of Use, which would preclude inference that it holds depositors’ coins as an agent or custodian. However, “when writing is building the infrastructure of an agency relationship, even an explicit disclaimer cannot be undone.”[3] As New York’s highest court has recognized, the existence of fiduciary duties “does not depend solely on an agreement or contractual relationship between the trustee and the beneficiary, but is a product of the relationship.”[4] In other words, just because Celsius claimed that she was not acting as an agent or trustee for Earn’s depositors does not mean that she got away with it. A factual record must be made to establish the true relationship between Celsius and Earn’s depositors.

Alternatively, Earn Program depositors can seek to reverse currency conversions to the percentile, based on securities law considerations applicable to unaccredited investors or fraudulent induction theory. (A quick YouTube search reveals several examples of statements made by Celsius administrators that appear to be inconsistent with Celsius’ terms of service.)

Earn depositors can also argue that the terms of use have been changed orally by public statements made by Celsius executives that they will continue to own and control their coins. Somewhat surprisingly, the Terms of Service contain no incorporation or no verbal amendment clauses; Thus, under New York law, a color argument can be made that the terms were altered orally to retain title to the coins with depositors.[5]


While custodians are likely to be in a stronger position to exclude their coins from real estate ownership, Earn depositors may also have a viable case for holding ownership of their crypto assets, despite the need for more factual development and legal analysis.

[1] Filing a bankruptcy petition creates a “bequest” consisting of all of the debtor’s legal or equitable interests in the property at the start of the case. We see 11 USC § 541.

[2] Of course, many of them are likely to be subject to preferential legal action. Under 11 USC § 547, a possessing debtor may recover payments made to creditors for a previous debt within 90 days of filing for bankruptcy. If the Earn coins are considered to be the property of the depositors’ estate or loans to a degree, then the transfer of the coins to the custodian will be the repayment of debts owed to creditors. Ce n’est pas un hasard si Celsius a déposé son bilan le 89e jour après la création des comptes de garde – la société et son avocat de faillite très compétent s’assuraient que toutes les pièces transférées dusté rio dé ede Earl of the best.

[3] Villeron Holdings, BV vs. Stanley, 117 F. Supplement. 3d 404, 452 (SDNY 2015).

[4] EBC I, Inc. v. Goldman, Sachs & Co. , 832 NE2d 26 (NY2005).

[5] See, for example, Merrill Lynch Realty Assocs., Inc. against Burr140 AD2d 589, 593, 528 NYS2d 857, 860 (1988) (making it clear that the New York Public Obligations Act “does not prohibit the enforcement of a subsequent oral agreement to alter or cancel a contract where … the contract does not contain an express provision prohibiting an oral modification”).

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