The legal issues seem to be filing up for crypto lender Celsius Network, which is in the midst of bankruptcy proceedings.
Disgruntled clients of the crypto lending platform have decided to take action for recovering their funds after Celsius had frozen withdrawals on its platform back in June.
Lawsuit filed
The bankruptcy proceedings of the Celsius Network are taking place in the Southern District of New York.
On Wednesday, a group of 64 people who had had custodial accounts on the Celsius platform turned to the United States Bankruptcy Court for filing a complaint with the goal of recovering their assets.
Court documents have revealed that the creditors want to recover their crypto assets worth $22.5 million that had been deposited in the custody service of the lending platform.
Togut, Segal & Segal, the law firm that focuses on bankruptcy, is representing the ad hoc group.
According to the plaintiffs, withdrawals from any program have not been honored by Celsius Network, including its custody services.
The complaint further stated that this was in contradiction to the terms of use of the debtor because the user retains the ownership of the custody assets.
Terms of Use
The Terms of Use of the Celsius Network dictate that the rights associated with the digital assets contained in its custody wallet shall belong to customers at all times.
They further state that these rights cannot be transferred to the company. The statement said that the company cannot loan, sell, transfer or rehypothecate the digital assets stored in its custody wallet.
It has to have instructions from the user to do so. Exceptions can only be made in the case of a valid court order, applicable law, government agency, or competent regulatory authority.
It should be noted that Celsius Network had last revised these terms of use in April of this year.
Trouble for the lender
Celsius Network is just one of the numerous crypto companies that have found themselves in a financial crunch given the ongoing bear market.
The crypto lending industry has been dealing with a lot of liquidity issues that have prompted a number of platforms to freeze their withdrawal and transfer features.
Celsius was actually the first lending protocol to make this move and only a month later, the company filed for bankruptcy.
The balance sheet of the crypto lending platform has a gap of about $1.2 billion and most of the money it owes is to its users.
The company had decided to file for Chapter 11 bankruptcy halfway through July due to the extreme market conditions.
While it is dealing with its bankruptcy proceedings and the other liquidity and legal challenges, Celsius also filed its own lawsuit.
This was against Prime Trust, the US custodian whose services it had engaged. The lawsuit had been late in August.
The crypto lending firm argued that $17 million worth of crypto had not been returned by Prime Trust to the company when they decided to terminate their relationship in June 2021.
