Celsius Depositors Fracture Again on Legal Strategy as 'Withhold' Group Lawyers Up

Some U.S.-based customers whose funds ended up frozen in holding accounts have hired a partner at Troutman Pepper to get access to their funds.

AccessTimeIconAug 22, 2022 at 3:08 p.m. UTC
Updated Aug 22, 2022 at 3:33 p.m. UTC

Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.

Failed cryptocurrency lender Celsius Network has seen yet another set of claimants band together and hire a lawyer, as the firm’s bankruptcy becomes an evermore messy and fractious affair.

The so-called “Withhold Accounts” group is composed of customers in U.S. states where Celsius became unable to offer them serviceable custody accounts thanks to cease and desist orders from regulators. These people were given the option to move their funds to withhold accounts, where it remains frozen.

The withhold group, which accounts for just $14.5 million of the roughly $12 billion marooned on Celsius when it stopped withdrawals back in June, has hired the legal representation of Deborah Kovsky-Apap, a partner at Troutman Pepper.

“We believe that the coins held in Withhold are not property of the estate,” said Kovsky-Apap in an email. “They’re simply not part of the Celsius ecosystem – it’s more like the depositors left their wallet at the bar and the bartender is just holding onto it until they come back to get it. We believe the Withhold accounts should be unfrozen as soon as possible so that depositors can retrieve their property.”

The bankruptcy hearing of Celsius, which froze customer accounts in June because of a giant hole in its balance sheet, is trying to appease some 1.7 million customers. Many of those were retail crypto holders attracted by the promising yields of decentralized finance (DeFi) and who saw Celsius as a safe option because the company was based on U.S. soil and promoted itself as a better option than a bank.

Celsius also must answer to its major institutional creditors and equity holders.

Withhold is not the first Celsius ad hoc group, a situation where bankruptcy claimants who believe they have a good enough argument hire their own legal counsel. Celsius custody account holders, who did not use the Earn program, have also sought their own legal representation.

Celsius customers in nine U.S. states received a message from the firm back on April 15 stating that because they were not accredited investors, they would not be eligible for custody accounts. These customers were told that if they wanted to remain in the Earn program they could be grandfathered in, explained Benny Wong, one of the organizers of the Withhold group.

“When it came to withdrawing out of Earn, Celsius gave a lot of warning messages that you are irreversibly withdrawing out of Earn and that you are going to lose out on earning interest until it becomes legal to exist in your state,” said Wong in an interview. “But then funds outside of Earn just got put into this third account type that we never even knew existed.”

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Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.

CoinDesk - Unknown

Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.

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