Cryptocurrency lending platform Celsius filed for Chapter 11 bankruptcy on July 13, 2022. Although the Celsius case involves digital assets, it remains subject to the United States Bankruptcy Code under the Bankruptcy Court for the Southern District of New York..
Although this is so, since Celsius went bankrupt there have been a number of unusual events. For example, Chief US Bankruptcy Judge Martin Glenn, who is overseeing the Celsius case, stated on October 17 that the court will look abroad for guidance.
Glenn specifically mentioned that “The legal principles applicable in the United Kingdom are not binding on the courts of the United States”, but noted that these “may be persuasive in addressing the legal questions that may arise in this case”. While the treatment of the Celsius case will conform to US bankruptcy laws, Glenn still intends to determine how the Celsius case should be treated.
Also, publicly available court documents related to Celsius’s bankruptcy proceedings have revealed personal data of thousands of platform customers. A large financial disclosure form filed on October 5 contains the customer names, account balances, timing of transactions and more.
Although this may have come as a shock to Celsius users, publication of this information is subject to the United States Bankruptcy Code. Adam Garetson, General Counsel and General Counsel of WonderFi Technologies, a Canadian-based regulated cryptocurrency exchange, told Cointelegraph that bankruptcy proceedings must be open, public and transparent:
“It is a strong way to avoid any suggestion of impropriety by the courts and the individuals and entities involved in the proceeding. As such, the courts can make petitions and impose orders on the bankrupt entity, including with respect to the release of information that is publicly available.
However, it is unusual for the commission’s investigations to have revealed such a wealth of customer information.. This point was made clear in an article in The National Law Review published on October 18, which states that “Debtors’ files and committee investigations have revealed to the public a great deal of information about the debtors’ financial affairs, whistleblower activity, and the history and direction of the bankruptcy case.“. The article also states that, even though so much personal information has been revealed, “there is still little indication of how claims will be treated and reimbursed in this case” .
Celsius Users Face Unintended Consequences
As Celsius clients continue to await decisions from the US Bankruptcy Court, the disclosure of personal information has caused additional stress. To add insult to injury, customer data was recently made public on a website called Celsiusnetworth.com.
The website allows anyone to search for Celsius users by name to reveal their losses, along with the cryptocurrencies they had invested on the platform.. As if this were not enough, the website includes a leaderboard listing customers based on biggest losses. Customer information can be tweeted from the website, as a tweet button appears once the user’s information is displayed.
The creators of Celsiusnetworth.com—going by the name “Avnx”—told Cointelegraph that the website was built using the public data disclosed as a result of legal operations of Celsius. The source further remarked that the website data should not be considered a leak, although they noted that the publication of this information may have similar consequences to the Ledger data leak that occurred in December 2020.”These data have been made public by Celsius. Like it or not, it’s a fact,” Aznx said.
According to Garethson, these types of sites are not common when it comes to bankruptcy proceedings. However, he mentioned that these types of events can arise as a result of high-profile events that generate the attention of a specific media, or the attention of a specific community. In fact, Avnx mentioned that Celsiusnetworth.com was designed to create a “buzz” rather than to make it easier for individuals to explore Celsius Creditors’ losses.. avnx said:
“For example, the Twitter button is a humorous approach, although nothing is funny about these events. However, this creates a stir to highlight various things, such as the fact that this information has been revealed, the amounts lost or the balances of certain strategic people within Celsius.
In any case, information revealed through the Celsiusnetworth.com website has had unforeseen consequences for many Celsius users.
For example, John Carvalho Jr., a Celsius user located in Massachusetts, told Cointelegraph that your personal information posted on Celsiusnetworth.com caused a lot of chaosespecially on Crypto Twitter.
Carvalho explained that he has the same name as the CEO of Synonym, which is a Bitcoin (BTC) software company.. As a result of the information being made public, several users on Crypto Twitter assumed that John Carvalho — the CEO of Synonym — had invested thousands of dollars in Celsius. This created a stir on Twitter, as users began accusing the CEO of “buying altcoins”, among other things. Carvalho said:
“I joined Twitter in 2020 but didn’t use it much. However, on the morning of October 10, I was tagged several times, as Crypto Twitter had me confused with John Carvalho, CEO of Synonym. Users were talking very negative, accusing John Carvalho of being a ‘shitcoiner’ and calling him a ‘fool'”.
“I had no idea who John Carvalho was. It’s unfortunate that user information was initially leaked, but this was compounded when it spread on Twitter.”he added.
I jumped to conclusions on the Celsius list, attributing the John Carvalho to @BitcoinErrorLog.
This was wrong and I apologize to John for this, a lesson learned.
—Peter McCormack☠️️ (@PeterMcCormack) October 10, 2022
I jumped to conclusions about Celsius’s listing, attributing a @BitcoinErrorLog to John Carvalho.
This was a mistake and I apologize to John for it, a lesson learned.
Carvalho pointed out that the situation was clarified after a tweet sent from the personal account of the CEO of Synonym, which referred to the confusion.
Meet @JohnCarvalho. We have the same name, but recently some shitcoiners tried to use his misfortune to smear my reputation.
John has a new baby girl and lost everything on Celsius. So I am asking you to help by donating some BTC to him here:
3Q5m2LTLZABvELbqUvSRmQnFFA8z2vP2qb pic.twitter.com/ViM5OIYdSh
— John Carvalho (@BitcoinErrorLog) October 10, 2022
Meet @JohnCarvalho. We have the same name, but recently some shitcoiners tried to use their disgrace to tarnish my reputation.
John has a new girl and he lost everything in Celsius. So he asks you to help him by donating some BTC on the link.
Carlos DePaz, a Celsius user and certified public accountant, told Cointelegraph that, although he believes it is unfortunate that user information has been made public, he is not personally impacted.
“If I were number one on the website’s leaderboard list, I might feel differently. It can be embarrassing for such people to let others know how much money they have lost. But for me personally, it’s not a big deal. It’s a live and learn situation.“, said.
Another Celsius creditor who wishes to remain anonymous told Cointelegraph that while he was not shocked that public information was leaked, he believes that this specific situation violates the privacy of users:
“I’m not sure if information like this is always in the public domain in similar cases, but it definitely feels like a breach of privacy since the information is financial in nature.”
Learned lessons
Although it is unfortunate that Celsiusnetworth.com was created as a result of publicly available user information, it demonstrates the Need for more education and regulatory clarity within the cryptocurrency sector.
For example, DePaz shared that initially viewed Celsius as a legitimate cryptocurrency lending platformstating: “Celsius was partially intriguing because the website and the regular “ask me what you want” segments seemed so legitimate. It seemed that Celsius was run by people who knew what they were talking about as they mentioned that the platform was licensed“.
Carvalho added that he saw Celsius as an opportunity to financially build his family’s future: “I was regularly listening to the ‘ask me anything’ segments and hearing Celsius say ‘put your money with us and we’ll make it work.’ I didn’t realize the risks involved at the time.”
Ben Samaroo, CEO of WonderFi Technologies, told Cointelegraph that what is unique about Celsius is that not much information was initially provided to customers. He said that:
“High returns were promised, but the risks involved may not have been disclosed or understood by customers. This might have been especially the case for first-time users, but it also affected those already in the industry.”
While Samaroo is responsible for operating a regulated cryptocurrency exchange based in Canada, it noted that WonderFi was also pressured by investors during the 2021 bull run to offer loan products similar to Celsius.and said that: “We couldn’t do it anyway, as this would have required us to go through regulators in Canada. We would have had to come up with a plan and do risk assessments, while making sure that safeguards and investors were in force”.
The current status of the Celsius case also demonstrates that platforms involving digital assets remain subject to US customary law. Shedding light on this, Garetson mentioned that this case is one more example of a broad and formal regulation in the United States on the cryptoactive sector is still pending.
“Traditional legal concepts such as contract, property, and bankruptcy law continue to apply regardless of the status of any cryptocurrency-specific law,” he said. As a result, Garetson pointed out that the results of the Celsius case are going to be determined in real time, not by Congress or a panel of experts, but by individual courts that are probably less familiar with the industry. “This highlights the need for thoughtful and harmonized regulation in the short term, especially regarding the supervision of centralized trading platforms,” he said.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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