The latest episode in the Celsius bankruptcy saga is just in: the Litigation Administrator of the defunct crypto exchange has begun serving clawback complaints filed in the US bankruptcy court to Australian customers. These customers now face the imminent threat of having default judgments entered against them by a US court unless they respond to the complaints.
The Litigation Administrator filed around 2000 separate clawback complaints in July 2024 in a US bankruptcy court seeking to recover money and assets withdrawn by customers of the exchange in the 90 days prior to bankruptcy. Prior to its fall in 2022, Celsius held approximately USD $25 billion in assets for over 1.5 million users, making it one of the largest crypto-asset custodians in the world.
Celsius, which filed for bankruptcy on 13 July 2022, is relying on broad preference provisions under the US Bankruptcy Code to seek to avoid and recover from customers who made net withdrawals exceeding USD$100,000 in the 90 days prior to bankruptcy. It is also seeking to recover a number of allegedly fraudulent transfers.
The Litigation Administrator is now seeking to serve customers who did not receive or accept settlement offers made by the Litigation Administrator early last year with summons issued by the US court on clawback actions and other claims. Celsius is claiming the value of cryptocurrency withdrawn by customers at US dollar market prices as at 14 June 2024 plus interest and costs. For many, the claim amount will significantly exceed the value of assets withdrawn from the exchange at 2022 prices.
There are a number of potential defenses to preference claims under the US Bankruptcy Code. Depending on their individual circumstances, some creditors may be able to rely on one of these clawback defenses to defeat a preference claim, although this remains a live issue which will likely need to be determined by the US Court. For now, the Litigation Administrator is arguing that no defences will apply.
Customer served by the Litigation Administrators will need to act swiftly to understand their legal options, including potential defences and settlement strategies.
Piper Alderman is liaising with experienced US counsel on developments in the Celsius bankruptcy and offering assistance to Australian-based customers who may be affected by clawback actions.
Written by J Huang and S Pettigrove
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