Customers who held cryptocurrency in custody accounts at Celsius Network, the bankrupt trading and lending firm, have banded together to hire legal counsel in a bid to get their money back.
The custody claimants, who account for about $180 million, or just 4% of the overall assets locked up in Celsius, are enlisting the services of Kyle J. Ortiz, a partner at the corporate restructuring firm Togut, Segal & Segal LLP. This ad hoc group has grown to more than 300 members in the weeks since the first bankruptcy hearing and has raised close to $100,000, the retainer for its legal representation.
“Everyone is signing engagement letters as we speak and have $93/$100k committed. I have no doubt we will get there,” David Little, one of the organizers of the custody account ad hoc group, said via direct message. "We grew our group from just a few individuals to almost 400 in a matter of days and have raised $100,000 with basically a group of competent strangers."
An ad hoc group in this context refers to a group of people with common interests in a case who are willing to foot the bill for their own legal representation. Unlike Celsius clients who deposited funds in the company’s high-yield Earn product, custody clients didn't collect interest. They used Celsius for storage, not to put their money to work. The groups also differ in that the Earn users appear to have signed away the title to their crypto assets, according to the firm’s terms of service, whereas with custody clients, the title of the assets remains with the wallet holder.
The now-underway bankruptcy hearings of Celsius, which froze customer accounts in June because of a $1.2 billion hole in its balance sheet, invites a contest among specific claimant types, including regular customers, major institutional creditors and equity holders.
The custody wallet holders were the first to form an ad hoc group in the case. These creditors are worried that Kirkland & Ellis, the law firm hired on Celsius’ behalf, may be telling them what they want to hear without doing much to support them, according to Thomas Braziel, the founder of bankruptcy claims specialist 507 Capital. For example, Kirkland could have filed a motion to return their money in fiat currency, as was done for another bankrupt crypto lender, Voyager Digital, where assets were held by a bank.
Instead, “Kirkland said they were going to file a ‘declaratory judgment’ for the court to decide what to do, rather than file a motion to return the assets,” Braziel said in an interview. “The word going round is that this is lip service to claimants. It’s not 100% clear that the assets are held in custody. Celsius says they hold it for you, but the language in the terms and conditions is very squishy. And so [Kirkland’s] position is ‘why give it to them if we don’t have to?'”
Neither Celsius nor Ortiz nor Kirkland immediately responded to requests for comment.