Regualation

A website revealing personal information from Celsius creditors has created stress and chaos for many, leading some to question the privacy of centralized exchanges.

Crypto lending platform Celsius filed for Chapter 11 bankruptcy on July 13, 2022. Although the Celsius case involves digital assets, it remains subject to United States Bankruptcy Code under the Bankruptcy Court for the Southern District of New York. 

While this may be, a series of unusual events have ensued since Celsius filed for bankruptcy. For instance, Chief United States Bankruptcy Judge Martin Glenn — the judge overseeing the Celsius case — stated on Oct. 17 that the court will look abroad for guidance.

Glenn specifically mentioned that “Legal principles that are applicable in the United Kingdom are not binding on courts in the United States,” yet he noted that these “may be persuasive in addressing legal issues that may arise in this case.” While the treatment of the Celsius case will abide by U.S. bankruptcy laws, Glenn still aims to determine how the Celsius case should be handled.

Additionally, publicly available court documents related to Celsius’ bankruptcy proceedings have revealed personal data from thousands of the platform’s customers. A large financial disclosure form filed on Oct. 5 contains customer names, account balances, timing of transactions and more.

While this may have come as a shock to Celsius users, releasing this information is subject to U.S. Bankruptcy Code. 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 strong way of avoiding any suggestion of impropriety by the courts and the persons and entities involved in the proceeding. As such, courts can make requests and impose orders on the bankrupt entity, including with respect to release of information which is available publicly.”

Yet, it is unusual that committee investigations have revealed such a large amount of customer information. This point was highlighted in an article from The National Law Review published on Oct. 18, which states, “Debtor filings and Committee investigations have revealed a great deal more to the public about the Debtors’ financial affairs, insider activity, and the path and direction of the bankruptcy case.” The article also states that even though so much personal information has been disclosed, “there is still little indication of how claims will be treated and repaid in this case.” 

Celsius users face unintended consequences

While Celsius customers continue to wait for decisions to be made by the U.S. Bankruptcy Court, the release of personal information has resulted in 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 Celsius users by their name to reveal their losses, along with the cryptocurrencies they had invested on the platform. If this wasn’t bad enough, the website includes a leaderboard that lists customers in terms of rankings for the greatest losses. Customer information can then be tweeted from the website, as a tweet button appears once user information is shown.

The creators of Celsiusnetworth.com — who go by the name "Avnx" — told Cointelegraph that the website was built using the public data published as a result of Celsius' legal operations. The source further remarked that the data on the website shouldn’t be considered as a leak, although they noted that releasing this information may have consequences similar to the Ledger data leak that occurred in Dec. 2020. “This data has been made public by Celsius. Whether we like it or not, it is a fact,” Aznx said. 

According to Garetson, sites like these are uncommon when it comes to bankruptcy proceedings. However, he mentioned that such occurrences may arise from high-profile events that generate specific media attention, or the attention of a particular community. Indeed, Avnx mentioned that Celsiusnetworth.com was designed to create a “buzz,” rather than making it easy for individuals to explore losses of Celsius Creditors. Avnx said:

“For example, the Twitter button is a humorous approach, although nothing is funny in these events. Yet this creates a buzz to highlight several 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, the information revealed via the Celsiusnetworth.com website has resulted in unintended consequences for many Celsius users. 

For example, John Carvalho Jr., a Celsius user based in Massachusetts, told Cointelegraph that his personal information released on Celsiusnetworth.com resulted in a large amount of chaos, particularly 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 information being made public, multiple users on Crypto Twitter assumed that John Carvalho — the CEO of Synonym — had invested thousands of dollars on Celsius. This created an uproar on Twitter, as users started 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 Oct. 10, I was tagged multiple times, as Crypto Twitter had confused me for John Carvalho, CEO of Synonym. Users were talking lots of trash, accusing John Carvalho of being a ‘shitcoiner’ and calling him a ‘dummy.’“

“I had no idea who John Carvalho was. It’s unfortunate that user information was leaked initially, but this was made even worse 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 apologise to John for this, a lesson learned.

— Peter McCormack ‍☠️️‍ (@PeterMcCormack) October 10, 2022

Carvalho noted that the situation was clarified following a tweet sent from the Synonym CEO’s personal account, which referenced the mixup. 

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

Carlos DePaz, a Celsius user and certified public accountant, told Cointelegraph that, while he thinks it's unfortunate that user information has been made public, he doesn’t feel personally impacted. 

“If I was number one on the leaderboard list on the website, I may feel differently. It may be embarrassing for those individuals for others to know how much money they lost. But for me personally, it’s not a big deal. It’s a live and learn situation,” he said.

Another Celsius creditor who wishes to remain anonymous told Cointelegraph that, while he wasn’t impacted by public information being leaked, he believes this specific situation violates user privacy:

“I am not sure if information of this sort is always public knowledge in similar cases, but it definitely feels like a violation of privacy being that the information is financial by nature.”

Lessons learned

While it’s unfortunate that Celsiusnetworth.com was created as a result of publicly available user information, this demonstrates the need for further education and regulatory clarity within the cryptocurrency sector. 

For instance, DePaz shared that he initially viewed Celsius as a legitimate crypto lending platform, stating, “Celsius was partially intriguing 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, as they mentioned the platform was licensed.”

Carvalho added that he viewed Celsius as an opportunity to build financially for the future of his family: “I would regularly listen to the ask-me-anything segments and would hear Celsius say ‘put your money with us and we will give you yield.’ I didn’t realize the risks involved at the time.”

Ben Samaroo, CEO of WonderFi Technologies, told Cointelegraph that what’s unique about the Celsius case is that a lot of disclosure wasn’t initially provided to customers. He said:

“High returns were being promised, yet the risks that came with that may have not been disclosed or understood by customers. This especially could have been the case for entry-level users, but it also impacted those who had already been in the industry.” 

While Samaroo is responsible for operating a regulated cryptocurrency exchange based in Canada, he pointed out that WonderFi was also put under pressure from investors during the 2021 bull run to offer lending products similar to Celsius, stating, “We couldn’t do this anyway, as this would have required us to go through regulators in Canada. We would have needed to present a plan and do risk assessments, while making sure safeguards and investor protections were in place.” 

The current state of the Celsius case also demonstrates that platforms involving digital assets are still subject to traditional U.S. laws. Shedding light on this, Garetson mentioned that this case is yet another example that broad, formal regulation in the U.S. over the crypto asset sector remains pending.

“Traditional legal concepts like contracts, property and bankruptcy law continue to apply regardless of the status of any ‘crypto’-specific law,” he said. As a result, Garetson noted that the outcomes of the Celsius case are going to be determined in real-time — not by congress or a panel of experts, but rather by individual courts who are likely less familiar with the industry. “This emphasizes a greater need for thoughtful and harmonized regulation in the near term, particularly as it relates to oversight of centralized trading platforms,” he said.