Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York issued a ruling last week in the Celsius Network bankruptcy case addressing whether customer deposits on a cryptocurrency exchange or platform are property of the debtor or property of the customer. The answer, not surprisingly, depends on the Terms of Use governing the account in question. In this case, the Court found that the terms clearly and unambiguously provided that ownership of cryptocurrency assets deposited into “Earn Accounts” resides with Celsius.
Cryptocurrency in Celsius’ Earn Accounts belongs to the bankruptcy estate, and not to the depositors who placed it there, according to a January 4 memorandum opinion from Judge Martin Glenn of the U.S. Bankruptcy Court in the Southern District of New York.
The Ontario Fraudulent Conveyances Act1 (the FCA), a concise statute of long-standing that traces its history to an English statute of 1571, is intended to prevent conveyances of property made with the intent to defeat, hinder, delay or defraud “creditors or others” of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures.
In 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule (“Rule”) that amends Regulation F, 12 C.F.R. part 1006, the Fair Debt Collection Practices Act (the “FDCPA”). The Rule became effective on November 30, 2021. Because the FDCPA was implemented over four decades ago, the Rule is designed to interpret and further the goals of the FDCPA in present day. The Rule places additional restrictions on debt collection practices and addresses communications regarding debt collection.
Scope of the Rule
Whose crytpo is it? With the multiple cryptocurrency companies that have recently filed for bankruptcy (FTX, Voyager Digital, BlockFi), and more likely on the way, that simple sounding question is taking on huge significance. Last week, the Bankruptcy Court for the Southern District of New York (Chief Judge Martin Glenn) attempted to answer that question in the Celsius Network LLC bankruptcy case.
Introduction
A crash in the cryptocurrency industry started this past spring, causing a significant number of cryptocurrency exchanges and related entities to seek bankruptcy protection, including the recent filing of one of the largest cryptocurrency exchanges, FTX. The volatility in the industry continues, with the subsequent filing of the cryptocurrency firm BlockFi and the crypto-mining company Core Scientific.
Crypto Basics
On the 9 of March earlier this year, the Court of Appeal (Civil Division) in the UK dismissed an appeal and confirmed that when an electronic money institution (“EMI”) is placed into administration, it was not necessary to impose a statutory trust in order to fulfil the purposes of the safeguarding provisions under EMD (Electronic Money Directive 2009/110) and PSDII (Payment Services Directive 2015/2366) considering that the spirit of both Directives was solely to preserve the sums paid by the EMI’s customers in the case of insolvency and against its other creditors.
On September 8, 2022, a three-judge panel in the United States Court of Appeals for the Second Circuit (the “Second Circuit”) reversed the United States District Court for the Southern District of New York (the “District Court”) when it determined that lenders of a syndicated loan facility to Revlon, Inc.
We have identified four judgments from 2022 which are significant for those in the private equity sector and may have particular relevance for sponsors, shareholders, management teams and/or appointees to boards. In this overview we summarise the key points and some of the practical implications.
The decisions we address are: