Bankrupt crypto lender Celsius has begun demanding customers who made major withdrawals in the three months preceding its bankruptcy to return their funds or face legal action.

A committee-supervised administrator has sent letters to customers who withdrew more than $100,000 each between April 14 and July 13, 2022. The withdrawals reportedly totaled over $2b collectively before Celsius’ July 2022 bankruptcy.

Assets recovered will be used to repay creditors who didn’t take out funds from Celsius, Bloomberg reported Wednesday, citing the letter.

Celsius Moves to Rectify ‘Unfair’ Withdrawals

A person on X, claiming receipt of the letter, shared part of its contents on X. The letter states that people who made the large withdrawals “have unfairly benefited at other account holders’ expense.” It adds that the withdrawals were initiated by less than 2% of Celsius’ users. But they accounted for nearly 40% of the platform’s assets.

Here's the email https://t.co/EDJP6YRqDO pic.twitter.com/pZY2SR0kq8

— Zata Zu (@Zata_Zu) March 20, 2024

Celsius is trying to reclaim the $2b withdrawn using a legal strategy known as the clawback provision.

This provision in bankruptcy law ensures the redistribution of assets equitably among creditors when a company becomes insolvent. It prevents preferential treatment, maintaining the integrity of the bankruptcy process.

Recovering funds from parties who didn’t do anything wrong may seem harsh. However, it ensures that all creditors are treated fairly and receive an equal share of the available assets.

‘Favorable Rate’ Offered to Customers

In the letter, the administrator said it would offer customers a “favorable rate” if they agreed to settle. Those who decline the settlement offer might face the prospect of returning a significantly larger sum through potential legal proceedings.

In January, Celsius informed creditors that customers who made significant withdrawals before the bankruptcy might be asked to return some of their funds or potentially face legal action.

However, users who withdrew less than $100,000 in the months leading up to the bankruptcy are not obligated to return their funds.