Celsius is facing legal action from a group of custodial customers. The pool of 400 customers owns about 4% of the total assets locked in the Celsius network — the equivalent of $180 million. The team hired the services of Kyle J. Ortiz, a partner at corporate restructuring firm Togut, Segal & Segal LLP.
One of the initiators, David Little, noted that legal action is receiving full support from affected customers, all of whom signed the pledge letter.
“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.”
Damaged clients have had to pay for a new lawyer in the hope of getting their money back, as they have lost confidence in Kirkland & Ellis, a law firm representing Celsius. They claim that the law firm is working to protect its profits instead of trying to refund clients.
Attorneys from Kirkland & Ellis, while representing Celsius in the first bankruptcy hearing on July 18, claimed that users gave up legal rights to their crypto assets when they accept the terms of service.
Customers using the Celsius Earn program had transferred the title of their coins to the firm. Consequently, since “Celsius owned the keys, they owned the coins” and were free to use, sell, pledge, and rehypothecate* the coins. Customers earned interest on their deposits but lost control of their assets.
*Rehypothecate is the act of a broker committing to a bank or other lender of securities that have been left to him by a client in escrow with him as a pledge for their margin purchase.
Attorney David Silver commented in a tweet:
In the case of customers using the Custody program, they still have title to their assets but do not receive interest. The company states that keeping a custodial account does not guarantee that users will be able to recover their funds in the face of bankruptcy.
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