Crypto lending platform Celsius filed for Chapter 11 bankruptcy on July 13, 2022. Although the Celsius case involves digital assets, it remains subject to the US bankruptcy law of the Bankruptcy Court for the Southern District of New York.
While that may be the case, a number of unusual events have occurred since Celsius filed for bankruptcy. For example, US Chief Bankruptcy Judge Martin Glenn — the judge overseeing the Celsius case — said on Oct. 17 that the court will seek advice abroad.
Glenn specifically mentioned that “UK legal principles are not binding on US courts”, but noted that they “can be persuasive in dealing with legal issues that may arise in the case”. While the handling of the Celsius case will comply with US bankruptcy laws, Glenn still wants to determine how the Celsius case should be handled.
Additionally, publicly available court documents related to Celsius’ bankruptcy proceedings have revealed personally identifiable information of thousands of the platform’s customers. A large financial disclosure form filed Oct. 5 includes customer names, account balances, transaction times and more.
While this may have come as a shock to Celsius users, the release of this information is subject to US bankruptcy laws. Adam Garetson, general counsel and chief legal officer at WonderFi Technologies, a regulated cryptocurrency exchange based in Canada, told Cointelegraph that bankruptcy proceedings should be open, public, and transparent:
“It is a powerful way to avoid any suggestion of impropriety by the courts and the people and organizations involved in the process. As such, courts can make requests and issue orders to the insolvent company, including with respect to the release of publicly available information.”
However, it is unusual for committee investigations to have unearthed such a large body of customer information. This point was emphasized in an Oct. 18 article by The National Law Review, which said: “Debtors’ filings and Committee investigations have revealed much more to the public about debtors’ financial affairs, insider activities, and the way and the way reveals management of the bankruptcy proceedings”. The article also states that while so much personal information has been disclosed, “there is still little evidence as to how claims in this case are being handled and repaid.”
Celsius users face unintended consequences
As Celsius customers continue to await decisions from the US Bankruptcy Court, the release of personal information has created additional stress. To make matters worse, customer data was recently leaked to a website called Celsiusnetworth.com.
The website allows anyone to search Celsius users by their name to reveal their losses along with the cryptocurrencies they have invested on the platform. As if that wasn’t bad enough, the site includes a leaderboard that lists customers with the biggest losses in terms of the leaderboard. Customer information can then be tweeted from the website as a tweet button will appear once user information is displayed.
The makers of Celsiusnetworth.com — who go by the name “Avnx” — told Cointelegraph that the site was built using the public data released as a result of Celsius’ legitimate operations. The source further noted that the data on the site should not be considered a leak, although they noted that the release of this information could have consequences similar to the Ledger data leak that occurred in December 2020. “These data were published by Celsius. Whether we like it or not, it’s a fact,” Aznx said.
According to Garetson, such pages are unusual in bankruptcy proceedings. However, he did mention that such occurrences may result from high-profile events that generate particular media attention or the attention of a particular community. In fact, Avnx mentioned that Celsiusnetworth.com was designed to generate “buzz” rather than make it easy for individuals to investigate Celsius creditor losses. Avnx says:
“For example, the Twitter button is a humorous approach, although there is nothing funny about these events. But this is causing a stir to highlight various things like the fact that this information was revealed, the amounts lost, or the balance sheets of certain strategic individuals within Celsius.”
In any case, the information leaked through the Celsiusnetworth.com website has led to unintended consequences for many Celsius users.
For example, John Carvalho Jr., a Massachusetts Celsius user, told Cointelegraph that his personal information posted on Celsiusnetworth.com caused a great deal of chaos, particularly on Crypto Twitter.
Carvalho explained that he has the same name as the CEO of Synonym, a Bitcoin (BTC) software company. As a result of the information being released, several users on Crypto Twitter assumed that John Carvalho – the CEO of Synonym – had invested thousands of dollars in Celsius. This caused an uproar on Twitter, with users accusing the CEO of “buying altcoins”, among other things. Carvalho said:
“I joined Twitter in 2020 but haven’t used it much. However, on the morning of October 10th, I was tagged multiple times as Crypto Twitter mistook me for John Carvalho, CEO of Synonym. Users talked a lot of trash, accused John Carvalho of being a ‘shitcoiner’ and called him a ‘dummy’.”
“I had no idea who John Carvalho was. It’s unfortunate that user information was leaked initially, but this got worse as it spread on Twitter,” he added.
I jumped to conclusions on the Celsius list and credited John Carvalho @BitcoinErrorLog.
That was wrong and I apologize to John for that, a lesson I learned.
— Peter McCormack ☠️️ (@PeterMcCormack) October 10, 2022
Carvalho noted that the situation was clarified after a tweet sent from Synonym’s CEO’s personal account referenced the mix-up.
Meet @JohnCarvalho. We have the same name, but recently some shitcoiners tried to use his misfortune to tarnish my reputation.
John has a new girl and lost everything on Celsius. So I am asking you to help him by donating some BTC to him here:
3Q5m2LTLZABvELbqUvSRmQnFFA8z2vP2qb pic.twitter.com/ViM5OIYdSh
— John Carvalho (@BitcoinErrorLog) October 10, 2022
Carlos DePaz, a Celsius user and chartered accountant, told Cointelegraph that while he regrets that user information has been made public, he doesn’t feel personally affected.
“If I were number one on the leaderboard on the site, maybe I would feel different. It can be embarrassing for these people when others know how much money they’ve lost. But for me personally it’s not a big deal. It’s a living and learning situation,” he said.
Another Celsius believer who wishes to remain anonymous told Cointelegraph that while he was not affected by the public information leak, he believes this specific situation violates user privacy:
“I’m not sure if information of this nature is always public knowledge in similar cases, but it definitely feels like an invasion of privacy since the information is financial in nature.”
Lessons learned
While it is unfortunate that Celsiusnetworth.com was created as a result of publicly available user information, it demonstrates the need for education and regulatory clarity within the cryptocurrency sector.
For example, DePaz shared that he initially viewed Celsius as a legitimate crypto lending platform, stating, “Celsius was intriguing in part because the website and regular ask-me-anything segments seemed very legitimate. It seemed like Celsius was run by people who knew what they were talking about since they mentioned the platform was licensed.”
Carvalho added that he sees Celsius as an opportunity to financially support his family’s future: “I would listen to the question-everything segments regularly and hear Celsius say, ‘Put your money with us and we’ll give you yield. ‘ I wasn’t aware of the risks involved at the time.”
Ben Samaroo, CEO of WonderFi Technologies, told Cointelegraph that what is unique about the Celsius case is that not much was disclosed to customers at first. He said:
“High returns were promised, but the risks involved may not have been disclosed or understood by clients. This could have been especially true for newcomers, but it also impacted those who were already in the industry.”
While Samaroo is responsible for operating a regulated cryptocurrency exchange based in Canada, he pointed out that WonderFi was also pressured by investors to offer credit products similar to Celsius during the 2021 bull run, stating, “We couldn’t do this anyway.” . as this would have required us to go through the regulators in Canada. We should have come up with a plan and conducted risk assessments while ensuring that safeguards and investor protection are in place.”
The current status of the Celsius case also shows that digital asset platforms are still governed by traditional US laws. To shed light on this, Garetson mentioned that this case is another example of broad, formal regulation in the US over the crypto-asset sector still awaiting.
“Traditional legal concepts such as contracts, property and bankruptcy law still apply regardless of the status of a ‘crypto’-specific law,” he said. As a result, Garetson noted that the Celsius case results are being determined in real time — not by Congress or a panel of experts, but by individual courts that are likely less familiar with the industry. “This underscores a greater need for well thought-out and harmonized regulation in the near term, particularly in relation to the oversight of centralized trading platforms,” he said.
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