Suspension of withdrawals on Celsius custody contradicts the plain language of the firm’s terms of use, a group of disgruntled creditors argued.
The bankrupt cryptocurrency lender Celsius Network is facing more legal issues as disgruntled clients are taking action to recover their funds after the platform froze withdrawals in June.
On Wednesday, an ad hoc group of 64 custodial account holders at Celsius filed a complaint with the United States Bankruptcy Court for the Southern District of New York to recover their assets.
According to court documents, the creditors seek to recover more than $22.5 million worth of cryptocurrency assets collectively held in Celsius’ custody service. The group is represented by bankruptcy-focused law firm Togut, Segal & Segal.
The plaintiffs noted that Celsius has “not honored any withdrawals from any programs,” including custody services. According to the complaint, that contradicts the “plain language of the debtors’ terms of use,” as they provide that title to custody assets “always remains with the user.”
According to Celsius’ terms of use, the right to any digital assets in its custody wallet shall “at all times remain” with customers and not be transferred to the company.
“Celsius will not transfer, sell, loan or otherwise rehypothecate eligible digital assets held in a custody wallet unless specifically instructed by you, except as required by valid court order, competent regulatory agency, government agency or applicable law,” the statement reads. The terms of use were last revised in April 2022, they note.
Related: Court filings reveal Celsius will run out of money by October
Celsius is one of the many crypto lending platforms to have experienced major issues amid the ongoing bear market and associated liquidity issues in the crypto lending sector. The company has a $1.2 billion gap in its balance sheet, with most liabilities owed to its users. Celsius filed for Chapter 11 bankruptcy protection in mid-July.
Amid the ongoing legal and liquidity challenges, Celsius filed a lawsuit against major U.S. custodian Prime Trust in late August. The firm argued that Prime Trust failed to return $17 million worth of crypto in June 2021 when it terminated its relationship with the lending firm.
