2026-07-31 · Illicit Finance
Judge Martin Glenn read the terms of use that Celsius customers had accepted and found that they had transferred ownership of their coins to the company. The clause was there the whole time.
Case file
| Field | Value |
|---|---|
| Matter | In re Celsius Network LLC, Chapter 11 |
| Court | Bankr. S.D.N.Y., Chief Judge Martin Glenn |
| Docket | 22-10964 (MG), jointly administered |
| Petitions filed | 13 July 2022. The Earn Assets opinion refers instead to a “July 15, 2022 petition date” |
| Key ruling | Earn Assets are property of the estates, 4 January 2023, ECF No. 1822, 45 pages |
| Scope of ruling | approx. 600,000 Earn accounts holding approx. $4.2 billion as of 10 July 2022 |
| Governing contract | Terms of Use Version 8, effective 15 April 2022, clickwrap, New York law |
| Examiner | Shoba Pillay, Jenner & Block. Interim report 18 November 2022; final report 31 January 2023, ECF No. 1956 |
| Plan | Confirmed 9 November 2023, ECF No. 3972. Effective 31 January 2024, ECF No. 4298 |
| Related criminal | United States v. Mashinsky, No. 1:23-cr-00347 (JGK), S.D.N.Y. Indictment 11 July 2023; pleaded guilty 3 December 2024; sentenced 8 May 2025, 12 years |
| Related civil | CFTC v. Celsius Network LLC and Alexander Mashinsky, No. 1:23-cv-06008 (ER), S.D.N.Y. Consent order entered 12 June 2026 |
| Still running | In re Celsius Customer Preference Actions, No. 24-04024 (MG), Bankr. S.D.N.Y. |
| Posture as of 31 July 2026 | Plan effective. Mashinsky serving sentence. Preference actions in pretrial before the bankruptcy court |
| Agencies | DOJ USAO-SDNY, SEC, CFTC |
What the record shows
Celsius Network LLC and its affiliated debtors filed voluntary Chapter 11 petitions in the Southern District of New York on 13 July 2022, having suspended withdrawals the previous month.
On 4 January 2023, Chief Judge Martin Glenn issued a 45-page memorandum opinion and order deciding who owned the cryptocurrency in the company’s Earn accounts. He found that the Celsius terms of use “formed a valid, enforceable contract between the Debtors and Account Holders, and that the Terms unambiguously transfer title and ownership of Earn Assets deposited into Earn Accounts from Accounts Holders to the Debtors.” The controlling document was Terms of Use Version 8, effective 15 April 2022, a clickwrap agreement governed by New York law under which Celsius held “all right and title to such Eligible Digital Assets, including ownership rights”. On the debtors’ uncontroverted evidence, 99.86% of Earn account holders had accepted Version 6 or later.
At the petition date Celsius had approximately 600,000 accounts in the Earn programme, holding cryptocurrency with a market value of approximately $4.2 billion as of 10 July 2022. Those assets were therefore property of the estates, and the account holders held unsecured claims. Glenn set out two limits on the ruling in the opinion itself. The finding establishes a presumption that is rebuttable by an individual account holder who succeeds on a contract formation defence, and it does not decide whether Celsius violated state securities laws. He also wrote that the finding “does not mean holders of Earn Assets will get nothing from the Debtors”, since the size of the allowed unsecured claims remained for the claims process.
One date in the opinion does not match the rest of the record. Its opening line refers to “the July 15, 2022 petition date”. The docket, two later opinions in the same case, and the plan’s 90-day preference window, which the plan measures from 14 April 2022, all point to 13 July 2022.
The examiner’s findings
Shoba Pillay of Jenner & Block was appointed examiner and filed her final report on 31 January 2023, following an interim report on 18 November 2022. The court had expanded her mandate to include an examination of claims that Celsius’s business operations amounted to a Ponzi scheme. Celsius provided her with approximately 500 gigabytes of data and records, including approximately 231,000 documents, and withheld over 6,700 further documents on privilege grounds. Counsel for the examiner interviewed 34 individuals for the final report, 26 of them current or former Celsius employees. The examiner interviewed former chief executive Alex Mashinsky for approximately seven hours.
Her central finding: “The business model Celsius advertised and sold to its customers was not the business that Celsius actually operated.”
On the CEL token, the report found that Celsius “spent at least $558 million buying its own token on the market”, and that from 2018 through the petition date it acquired at least 223 million CEL from the secondary market, more than the 203 million CEL released to the public in the initial coin offering.
On funding withdrawals from deposits, the examiner found that as of the withdrawal pause Celsius appeared to satisfy withdrawal requests from the commingled pool of assets under management, and that in some instances between 9 and 12 June 2022 Celsius did directly use new customer deposits to fund customer withdrawal requests. She recorded that her identification of those transactions was not a comprehensive or exhaustive list for all time periods.
The criminal and civil cases
Alex Mashinsky was indicted in the Southern District of New York on 11 July 2023, No. 1:23-cr-00347 (JGK). He pleaded guilty on 3 December 2024 before US District Judge John G. Koeltl, and on 8 May 2025 Koeltl sentenced him to 12 years for committing commodities fraud and securities fraud. He also received three years of supervised release, a $50,000 fine, and a forfeiture order of $48,393,446.
The sentencing release fills in the scale. Celsius held roughly $25 billion in assets at its peak in the autumn of 2021. It halted withdrawals on 12 June 2022, at which point hundreds of thousands of customers had $4.7 billion in inaccessible assets on the platform. It filed for bankruptcy on 13 July 2022.
Prosecutors say Mashinsky and others spent hundreds of millions of dollars buying CEL on the open market to inflate its price, at times using customer deposits to do it without telling customers, and that Mashinsky made roughly $48 million selling CEL while publicly claiming he was not selling. In the weeks before the halt, while assuring customers the platform was liquid, he withdrew $8 million of his own non-CEL assets.
Roni Cohen-Pavon, Celsius’s chief revenue officer, who later pleaded guilty to illegally manipulating CEL’s price, put it to Mashinsky privately in a message the government quotes: “the value was fake and was based on us spending millions.”
The CFTC sued Celsius Network LLC and Mashinsky on 13 July 2023 in the Southern District of New York, No. 1:23-cv-06008 (ER). A consent order against Celsius followed on 17 July 2023. Judge Edgardo Ramos entered the consent order resolving the case against Mashinsky on 12 June 2026, and the CFTC announced it on 18 June 2026. The order carries no civil monetary penalty. It imposes a permanent injunction against further violations of section 6(c)(1) of the Commodity Exchange Act and Regulation 180.1, and permanent bans on trading commodity interests, having them traded on his behalf, directing trading, soliciting or accepting funds, registering with the Commission in any capacity, and acting as a principal, officer, employee or agent of any registered entity. Counts II, III and IV of the complaint were dismissed with prejudice.
Two provisions of the order sit awkwardly together. At paragraph 2 Mashinsky “admits to violating” section 6(c)(1) and Regulation 180.1(a)(1)-(3), which is Count I. At paragraph 14 he consents to entry of the order “without admitting or denying the allegations of the Complaint, except as to jurisdiction and venue”.
The part that is still running
The plan was confirmed on 9 November 2023 and became effective on 31 January 2024. Under it, Mohsin Y. Meghji was appointed Litigation Administrator for the post-effective-date debtors, with power to pursue avoidance actions.
Section 547 of the Bankruptcy Code lets an estate claw back transfers a debtor made to a creditor in the 90 days before the petition. For Celsius that window opens on 14 April 2022. Account holders who withdrew assets inside it are exposed, and the plan gave that exposure a name: Withdrawal Preference Exposure, the value of everything an account holder withdrew in those 90 days, less deposits made after their first withdrawal.
Two settlement offers were made before litigation. The plan offered account holders with exposure above $100,000 a release of avoidance claims in exchange for voting for the plan, not opting out of the releases, and paying 27.5% of their exposure in cash. On 20 March 2024 the Litigation Administrator offered those who had received more than $100,000 in transfers during the preference period the chance to settle at 13.75% of transaction-date pricing. That offer stayed open until 29 October 2024.
Avoidance actions were filed in July 2024 against those who had not settled. On 6 September 2024 a consolidated docket was created for them: In re Celsius Customer Preference Actions, No. 24-04024 (MG). The defendants are 174 former customers of Celsius.
Two rulings have followed. On 29 July 2025, Chief Judge Glenn decided the Phase One issues, ECF No. 77, and found for the Litigation Administrator on all three: that the plan’s definition of Withdrawal Preference Exposure does not cap what he may recover under sections 547 and 550, that the defendants are subject to personal jurisdiction, and that the transfers were domestic, so the presumption against extraterritoriality does not bar the claims.
The defendants then moved to withdraw the reference, which would move the dispute to the district court. That motion became No. 1:25-cv-07328 in the Southern District of New York, filed 4 September 2025 and assigned to Judge John G. Koeltl, the same judge who sentenced Mashinsky. Koeltl captioned his opinion In re Celsius Customer Preference Actions, and on 9 December 2025 he denied the motion, holding that although the bankruptcy court cannot enter final judgment on the avoidance claims, judicial economy strongly favours letting it manage the pretrial process. He noted that only eight of the 174 defendants had filed proofs of claim, and six of those had agreed to expunge them. The defendants may renew the motion if and when the claims are ready for trial. The district court case was closed the same day.
What I think happened
The Glenn ruling is the most important document in this case and it is not about fraud at all.
Two things happened at Celsius and they get conflated. There was conduct the examiner described in detail and that Mashinsky later admitted to in a guilty plea. Separately, there was a contract. The contract would have produced substantially the same outcome for depositors even if every executive had behaved honourably, because the terms of use transferred title. If Celsius had failed for boring reasons, the Earn assets would still have been estate property and depositors would still have been unsecured creditors standing in line.
That is the part worth internalising. The loss mechanism was not hidden in a wallet somewhere. It was in a document that every user accepted, in language the court called unambiguous. Roughly 600,000 people agreed to it, and on the debtors’ own evidence almost all of them agreed to a version that said so plainly.
I do not think most of them were careless in a way that deserves blame. The product was presented in the vocabulary of banking, and the word “account” is doing enormous work in “Earn account”. People reasonably heard deposit. What they signed was closer to an unsecured loan to a company, at a rate, with no collateral and no deposit protection behind it.
Read the docket caption slowly, because it is the detail most coverage of this bankruptcy leaves out. More than three years after the filing, the party suing former Celsius customers is the estate’s own Litigation Administrator, and what he wants back is the money they took out before the doors closed.
The preference actions are where this gets genuinely uncomfortable, and they follow from the same clause. Once the court holds that the coins were Celsius’s property, a customer who pulled money out in the spring of 2022 did not withdraw their own asset. They took repayment on a debt, ahead of everybody who did not move. That is the textbook shape of a preference, and the Bankruptcy Code exists in part to unwind it. So the Litigation Administrator is now asking the people who read the situation correctly and acted early to hand some of it back. Nobody designed that. It falls out of the title question.
The examiner’s finding about paying withdrawals from new deposits is narrower than the version that circulated, and I would rather use the narrow one, because it is the one she actually made and it still carries the point. Yield has to come from somewhere identifiable. If a platform cannot tell you in a sentence who is paying the yield and out of what, you are relying on the platform’s own accounting to answer a question you cannot check.
What would have changed the outcome
Read who holds title. That is the whole lesson and it takes about ten minutes per platform.
Any product paying you a return on digital assets is doing one of two things. Either it is holding your asset for you and you still own it, or you have transferred it to somebody who now owes you a return. The second is a loan. It can be a perfectly reasonable loan, but it makes you an unsecured creditor of that counterparty, ranking behind secured lenders and ahead of nobody much, and the rate you are being paid should be judged against that risk rather than against a savings rate.
The specific things worth checking before money moves:
- Does the agreement use the words “title”, “ownership”, or “transfer”? Glenn’s ruling turned on exactly that language, in section 13 of a document most users clicked past.
- Who is the legal counterparty, and where is it incorporated? That determines which insolvency regime applies.
- Where is the yield generated, stated concretely enough that you could verify it?
- Are the assets segregated from the operating business, and can anyone demonstrate it?
- If the platform failed tomorrow, could a withdrawal you made this quarter be clawed back? Where title has passed, the answer may be yes.
For assets you intend to hold rather than lend, the alternative is holding them in your own name with a third-party qualified custodian, so that no terms-of-use clause is capable of moving title away from you. DAG advises digital-asset holders on how positions are held and structured, including this distinction between owning an asset and holding a claim.
Being straight about the limits: this addresses who owns what in an insolvency and does nothing about market risk. Holding your own coins through a downturn is its own kind of loss, and it is not the kind a custody arrangement solves.
Sources
- In re Celsius Network LLC, No. 22-10964 (MG), Bankr. S.D.N.Y., Memorandum Opinion and Order Regarding Ownership of Earn Account Assets, ECF No. 1822, 4 January 2023.
- Final Report of Shoba Pillay, Examiner, same docket, ECF No. 1956, 31 January 2023. Interim Report, 18 November 2022.
- In re Celsius Customer Preference Actions, No. 24-04024 (MG), Bankr. S.D.N.Y., Memorandum Opinion and Order on Phase One Issues, ECF No. 77, 29 July 2025.
- In re Celsius Customer Preference Actions, No. 1:25-cv-07328 (JGK), S.D.N.Y., Memorandum Opinion and Order, ECF No. 45, 9 December 2025.
- CFTC v. Celsius Network LLC and Alexander Mashinsky, No. 1:23-cv-06008 (ER), S.D.N.Y., Consent Order for Permanent Injunction and Other Equitable Relief Against Defendant Alexander Mashinsky and Order Dismissing Counts II, III, and IV of the Complaint, ECF No. 34, entered 12 June 2026.
- CFTC press release 9256-26, “CFTC Resolves Action Against Celsius Founder”, 18 June 2026.
- US Attorney’s Office, S.D.N.Y., press release 25-109, “Founder Of Celsius Sentenced To 12 Years For Fraud And Market Manipulation”, 8 May 2025.
Related on this desk
- Ruscoe v Cryptopia: crypto can be held on trust — the same question, opposite answer, because the documents said something different.
- Prime Trust: the custodian that could not open its own wallets — and the case where the documents stopped mattering once the assets could not be told apart.
- FTX: what happens to your coins when the exchange files Chapter 11 — what a customer claim is actually worth once it is valued at the petition date.
Disclosure. Max Avery is affiliated with Digital Ascension Group (DAG). Investment advisory services are offered through DAG Wealth, an SEC-registered investment adviser (CRD No. 328627). Registration does not imply a certain level of skill or training. DAG is not a law firm and does not provide legal or tax advice. Custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them. Nothing here is investment, legal, or tax advice, or a recommendation to buy or sell any asset. This article describes matters of public record; charges are allegations and defendants are presumed innocent unless and until proven guilty.