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around 2000 separate clawback complaints in July 2024 in a US bankruptcy court seeking to recover money and assets withdrawn by customers of the exchange in the 90 days prior to bankruptcy.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 Celsius is claiming the value of cryptocurrency withdrawn by customers at US dollar market prices as at 14 June 2024 plus interest and costs. For many, the claim amount will significantly exceed the value of assets withdrawn from the exchange at 2022 prices.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 Jake Huang and Steven Pettigrove
SEC announces Crypto 2.0 taskforce
The new Trump administration has made a series of dramatic policy announcements and changes across a wide range of areas. For the blockchain industry, after years of regulation-by-enforcement by the SEC under Gary Gensler, some stunning changes have been announced. First, Commissioner Mark T. Uyeda, who has authored dissents against the prior regulation-by-enforcement approach, has been appointed Acting SEC Chair. Chair Uyeda has called the previous SEC approach:
a disaster for the whole industry
As one of his first acts as Acting SEC Chair, Uyeda has announced the formation of a crypto task force, led by so-called “crypto-mom” Commissioner Peirce, who has written blistering dissents concerning previous enforcement actions by the SEC.
The Task Force aims to develop:
a comprehensive and clear regulatory framework for crypto assets…the Task Force will collaborate with Commission staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law
Key priorities for the task force include:
The announcement of the Task Force decries “enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations”.
Commissioner Peirce, a longstanding advocate for thoughtful crypto regulation, has emphasised the need for collaborative input from investors, industry participants, and academics. The task force will also engage with Congress to provide technical assistance, aiming to align the SEC’s regulatory efforts with the statutory framework and broader policy objectives.
Commissioner Peirce is under no illusion as to the challenges ahead, saying:
This undertaking will take time, patience, and much hard work. It will succeed only if the Task Force has input from a wide range of investors, industry participants, academics, and other interested parties.
Given the significant influence the SEC has over international crypto regulation, this move is likely to have global ramifications.
This new direction represents a dramatic shift in US policy by embracing innovation and seeking to establish policy settings that facilitate the unique features of blockchain and digital assets. By working together with industry stakeholders and international counterparts, the SEC’s new approach has the potential to rebuild trust with the crypto industry, and establish a regulatory environment that protects investors while recognising the potential of the digital economy.
Steven Pettigrove – Partner, Piper Alderman
Jake Huang – Associate, Piper Alderman