Former Celsius Customers’
Motion to Withdraw Bankruptcy
Court Reference Rejected by SDNY
February 2026
Joining many other crypto-currency debtors that sought Chapter 11 protection in the wake of the 2022-23 “crypto winter”, Celsius Network filed for bankruptcy in 2022 and emerged in 2024. The Litigation Administrator appointed under Celsius’ reorganization plan has since pursued various claims and causes of action in efforts to augment creditor recoveries. One of those litigations involves preference claims against former Celsius Network customers who withdrew digital assets during the ninety days preceding Celsius’ July 2022 bankruptcy filing.
A group of 174 former Celsius customers (“the Defendants”) had sought to withdraw the reference of bankruptcy avoidance proceedings from the Bankruptcy Court such that those claims would be heard by the United States District Court for the Southern District of New York (the “District Court”)1, one of the few venue-shifting options available to avoidance defendants seeking a forum they perceive to be more favorable. The Defendants argued that mandatory withdrawal was required due to contemplation of federal non-bankruptcy securities and commodities law issues and that permissive withdrawal was warranted given their entitlement to a jury trial.
On December 9, 20252, District Court Judge John G. Koeltl denied the motion to withdraw the reference, rejecting both arguments. On mandatory withdrawal, the court found the motion untimely—it was filed more than a year after Defendants first indicated their intention to seek withdrawal of the reference and only after receiving an adverse ruling on preliminary issues—and concluded that it may constitute tactical forum shopping. The District Court also rejected the novel argument that determining whether Celsius’ customer rewards program (“Earn”) was a security required significant interpretation of non-bankruptcy law.
A group of 174 former Celsius customers (“the Defendants”) had sought to withdraw the reference of bankruptcy avoidance proceedings from the Bankruptcy Court such that those claims would be heard by the United States District Court for the Southern District of New York (the “District Court”)1, one of the few venue-shifting options available to avoidance defendants seeking a forum they perceive to be more favorable. The Defendants argued that mandatory withdrawal was required due to contemplation of federal non-bankruptcy securities and commodities law issues and that permissive withdrawal was warranted given their entitlement to a jury trial.
On December 9, 20252, District Court Judge John G. Koeltl denied the motion to withdraw the reference, rejecting both arguments. On mandatory withdrawal, the court found the motion untimely—it was filed more than a year after Defendants first indicated their intention to seek withdrawal of the reference and only after receiving an adverse ruling on preliminary issues—and concluded that it may constitute tactical forum shopping. The District Court also rejected the novel argument that determining whether Celsius’ customer rewards program (“Earn”) was a security required significant interpretation of non-bankruptcy law.
On permissive withdrawal, the District Court held that judicial economy strongly favored allowing the Bankruptcy Court to continue managing pre-trial proceedings and emphasized that entitlement to a jury trial does not automatically warrant withdrawal. However, the District Court left open the possibility that defendants could renew their motion once the matter became trial ready.
Timeline of the Celsius Litigation to Date
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Timeline of the Celsius Litigation to Date
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On permissive withdrawal, the District Court held that judicial economy strongly favored allowing the Bankruptcy Court to continue managing pre-trial proceedings and emphasized that entitlement to a jury trial does not automatically warrant withdrawal. However, the District Court left open the possibility that defendants could renew their motion once the matter became trial ready.
Background on the Celsius Bankruptcy
During the fallout of the collapse of the Terra stablecoin, Celsius filed for Chapter 11 bankruptcy on July 13, 20223. The Bankruptcy Court confirmed the Debtors’ Chapter 11 plan on November 9, 20234. In July 2024, the Litigation Administrator filed approximately 2,400 adversary proceedings seeking to avoid allegedly preferential transfers under sections 547 and 550 of the Bankruptcy Code, and to disallow related claims under section 502(d) of the Bankruptcy Code. The Defendants filed a limited objection to the court’s general scheduling and discovery procedure order, wherein they reserved the right to seek withdrawal of the reference5, but ultimately answered the complaints6.
Nearly a year later, on September 2, 2025, the Defendants filed their motion to withdraw the reference from the Bankruptcy Court under 28 U.S.C. § 157(d). Section 157(d) provides for both mandatory and permissive withdrawal, stating that a court “may” withdraw for “cause shown”, but “shall” withdraw if the court determines that “resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.”7
The Defendants argued for mandatory withdrawal because consideration of the Defendants’ safe-harbor defenses under 11 U.S.C. § 546(e) and (g) would require “significant interpretation” of securities or commodities laws, and permissive withdrawal due to the Bankruptcy Court lacking the authority to decide on the avoidance actions8. The post-confirmation Debtors replied that withdrawal was inappropriate and the motion was untimely9.
Motion for Withdrawal Decision
On December 9, 2025, the District Court denied the Defendants’ motion for both mandatory and permissive withdrawal of the reference without prejudice for untimeliness and on the merits10.
Mandatory Withdrawal
The District Court found that the Defendants’ motion was untimely, because the Defendants waited for more than a year after reserving on the issue, and only filed after an adverse ruling by the Bankruptcy Court11. The District Court found that the Defendants should have filed the motion when they first had notice of grounds for mandatory withdrawal, and was troubled by the potential forum shopping12.
On the merits, the District Court found that mandatory withdrawal was not required because the Bankruptcy Court could resolve the avoidance action on the basis of the Defendants’ other arguments. Even if the Bankruptcy Court did reach the question of whether Earn is a security, Judge Koeltl noted that courts in the district regularly determine whether digital assets are securities and this would require only “routine application of existing law” 13.
In fact, a prior District Court decision had already determined Earn to be a security, meaning the Defendants failed to identify any substantial and material consideration of non-bankruptcy law necessary to resolve the litigation14.
Permissive Withdrawal
On the issue of permissive withdrawal, the District Court concluded that, while the Bankruptcy Court does not have the constitutional authority to enter a final decision on the avoidance claims or run a jury trial, considerations of judicial economy, uniformity, and forum shopping leave the Bankruptcy Court best positioned to manage pre-trial proceedings. On these grounds, the District Court found that the Bankruptcy Court could conclude all pre-trial proceedings despite Defendants’ reservation on the right to seek withdrawal15.
The District Court noted that if the Defendants are entitled to a jury trial on their claims, they can renew their motion when those claims are ready for trial16.
Implications for other Crypto Cases
The Defendants’ failed motion for withdrawal in Celsius is likely not the last time that defendants in adversary proceedings initiated by crypto-companies will attempt to withdraw reference on the basis that deciding the cases requires “significant interpretation” of securities and other non-bankruptcy law. While the argument was unsuccessful in Celsius, the issues of untimeliness and prior securities findings by the District Court undermined their motion.
Estimated Losses From Notable Crypto Exchange Bankruptcies
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Source: Comsure Group
Implications for other Crypto Cases
The Defendants’ failed motion for withdrawal in Celsius is likely not the last time that defendants in adversary proceedings initiated by crypto-companies will attempt to withdraw reference on the basis that deciding the cases requires “significant interpretation” of securities and other non-bankruptcy law. While the argument was unsuccessful in Celsius, the issues of untimeliness and prior securities findings by the District Court undermined their motion.
Estimated Losses From Notable Crypto Exchange Bankruptcies
Click to find out more
Source: Comsure Group
In other cases, the merits of whether determining what constitutes a security is significant interpretation of non-bankruptcy law and whether there is cause to withdraw the reference could well be decided differently. Withdrawing the reference to the Bankruptcy Court may continue to represent an important strategic opportunity for counsel to individuals or entities with preference exposure to crypto debtors.
Additionally, this case counsels that merely reserving the right to assert mandatory withdrawal at a later date may not be sufficient where the asserting party then proceeds to litigate a significant portion of the issues, even where they argue the decided portion would not be overturned by the withdrawal. The District Court looked unkindly on this strategy, which it deemed wasteful of the parties’ resources given the need to litigate an issue that would not have been needed had the Defendants promptly moved for withdrawal of the reference. Indeed, an even poorer position is one where a party proceeds with litigation and then attempts to argue for withdrawal after receiving an adverse order from the court they are seeking to be removed from.
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