By Luke Barefoot & Brendan Gerdts (Cleary Gottlieb)
Amid 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 including preference claims against former Celsius Network customers who withdrew digital assets shortly before Celsius’ July 2022 bankruptcy filing. A group of 174 former Celsius customers (“the Defendants”) 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”), one of the few venue-shifting options available to avoidance defendants seeking a forum they perceive to be more favorable.
On December 9, 2025, District Court Judge John G. Koeltl denied the motion to withdraw the reference, rejecting arguments for mandatory and permissive withdrawal. On mandatory withdrawal, the court found the motion untimely and concluded that it appeared to constitute tactical forum shopping. The District Court also rejected the novel argument that determining whether Celsius’ customer rewards program was a security required significant interpretation of non-bankruptcy law. On permissive withdrawal, the District Court emphasized that entitlement to a jury trial does not automatically warrant withdrawal and allowed the Bankruptcy Court to continue managing pre-trial proceedings with the note that the Defendants can renew their motion when those claims are ready for trial.
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. In other cases without the issues of untimeliness and forum-shopping, 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, the case counsels that merely reserving the right to assert mandatory withdrawal at a later date may not always be sufficient.
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