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More than half a million people who deposited money with collapsed crypto lender Celsius Network have been dealt a major blow to their hopes of recovering their funds, with the judge in the company’s bankruptcy case ruling that the money belongs to Celsius and not to the depositors.
The judge, Martin Glenn, found that Celsius’s terms of use — the lengthy contracts that many websites publish but few consumers read — meant “the cryptocurrency assets became Celsius’s property.”
The ruling underscores the Wild West nature of the unregulated crypto industry. On Thursday, New York Attorney General Letitia James moved to impose a kind of order, or at least legal repercussions, on Celsius founder Alex Mashinsky, whom she accused in a lawsuit of defrauding hundreds of thousands of consumers.
Crypto’s fortunes have plummeted in recent months since Celsius became the first major crypto platform to implode last year, its bankruptcy in July freezing at least $4.2 billion for 600,000 Americans, according to court papers, and foreshadowing the collapse of FTX four months later.
And while Glenn’s ruling won’t affect FTX, whose terms of use were different, some analysts saw the ruling as spreading beyond Celsius.
“There are many other platforms that feature terms of use that are similar to Celsius’s,” said Aaron Kaplan, a lawyer with the financial-focused firm of Gusrae Kaplan Nusbaum and co-founder of his own crypto company. Customers need to “understand the risks that they are taking when depositing their assets onto insufficiently regulated platforms,” he said.
James’s lawsuit, meanwhile, alleged that Mashinsky used “false and misleading representations to induce [customers] to deposit billions of dollars in digital assets.” The suit seeks unspecified damages from Mashinsky and wants to bar him from a range of financial and other work in New York.
A spokesperson for Celsius, Luke Wolf, said Mashinsky is no longer involved in management of the company. Mashinsky did not respond to a message seeking comment.
For years, Celsius promised extravagant interest rates in the neighborhood of 20 percent for people in a kind of fantasy version of a real-world bank, driving many who had no interest in crypto to enter the market.
The suit says Mashinsky was the reason. “In hundreds of interviews, blog posts, and livestreams,” it says, “Mashinsky promoted Celsius as a safe alternative to banks while concealing that Celsius was actually engaged in risky investment strategies.”
Crypto’s frozen mystery: The fate of billions in Celsius deposits
Mashinsky was known for his regular “Ask Mashinsky Anything” Q&As online and T-shirts with messages such as “Banks Are Not Your Friends.” Mobs of fans on YouTube and Twitter hailed the cult of “The Machine,” as he was nicknamed. If FTX’s Sam Bankman-Fried was the public face of crypto in the halls of Washington, Mashinsky was often its most prominent symbol to ordinary investors.
The suit painted a picture of a person intent on pitching himself as a hero for the unbanked and working class when much of those people’s money was in fact used to fund highly risky investments.
“Touting himself and his company as a modern-day Robin Hood, Mashinsky boasted that Celsius ‘delivers yield … to the people who would never be able to do it themselves, [and] we take it from the rich,’” the suit said. “These promises were false.”
According to the bankruptcy court, however, there may be a limit to what the legal system can do when crypto companies are savvy enough to protect themselves. Investors and a number of states that joined their motion say the language was at least “ambiguous” in the rights it granted Celsius. But Glenn disagreed.
Lawyers for Celsius, Joshua Sussberg and Patrick J. Nash Jr., and lawyers for the creditors, Gregory Pesce and Andrea Amulic, did not respond to requests for comment.
The bankruptcy ruling focused specifically on whether Celsius as part of the restructuring can now sell $18 million in so-called stablecoins, a type of virtual currency, to help stay solvent. But its implications are much larger. By ruling that the money in the accounts wasn’t really owned by the 600,000 account holders, the court has basically said they are now just unsecured creditors. And “there simply will not be enough value available to repay” them, Glenn wrote.
The effects could go even beyond them to impact other crypto platforms with strict language in their fine print — presenting problems to customers in the event of a collapse.
“This just raises another question about how hard it is to transact in the Wild West of crypto,” said Brian Marks, who teaches economics and business law at the Pompea College of Business at the University of New Haven and has studied the Celsius case. “I would not be surprised to see other companies reexamine their terms and conditions after this.”
The connections between crypto firms are vast, and the failures of one can ripple to another, even months later. On Thursday, the crypto lender Genesis said it would lay off 30 percent of its staff, partly as a result of a loan to FTX sister firm Alameda Research.
Celsius creditors are affected by the FTX bankruptcy too. Mashinsky’s former firm, the New York lawsuit revealed, had lent $1 billion to Alameda that it collateralized with FTX’s token FTT.
“The value of FTT has since plummeted by roughly 95%,” it said, “leaving Celsius holding nearly worthless collateral.”

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