A Southern District of New York Bankruptcy Judge has approved Celsius Network’s request to serve legal notices via non-fungible token (NFT) airdrops.
Celsius, currently undergoing insolvency proceedings, seeks to recover funds from allegedly fraudulent transfers to unidentified digital wallets.
Alternative Solution
Following its bankruptcy, the company sued to void the fraudulent transfers and recover additional funds for its creditors. However, due to the anonymous nature of cryptocurrency transactions, it has been unable to identify the individuals behind the digital wallets involved in these transfers.
To resolve this issue, Celsius proposed a new solution that involves using NFTs to serve legal notices. Each NFT will contain a hyperlink directing recipients to a website where they can access the legal complaint and other relevant documents. These digital assets will be airdropped directly to the digital wallets associated with the disputed transfers.
The platform has also enlisted the services of FTI Consulting to ensure that the NFTs are received and appropriately accessed. FTI will confirm the digital assets are received on-chain, track the exact date and time they are accessed, and monitor website traffic to ensure real people rather than automated bots open the hyperlinks.
FTI has also traced the transfers to the targeted wallets, verifying they have remained active since the transactions in question and that the same individuals likely control them.
This information and the inability to locate the defendants through traditional means led the court to determine that conventional service methods were impracticable. The judge ruled that serving the legal notices via NFTs would be the most effective way to notify the defendants about the litigation.
Legal Precedent Set for Crypto and Blockchain
Under New York law, alternative service methods are permitted when traditional methods are impracticable, provided they meet constitutional due process standards. According to a report by crypto law firm Kelman Law, the court ruled that traditional methods, such as sending legal notices to physical addresses, were ineffective in this case because the identities of the wallet holders were difficult to trace.
It concluded that these requirements were met by serving legal notices through NFTs sent directly to the wallets involved in the fraudulent transfers. The court found this method reasonable for informing the defendants of the legal action against them.
Bankruptcy Judge Martin Glenn concluded that Celsius’s approach was “the best possible way” to notify the defendants and praised the company for its “innovative” solution. The judge compared this new method to the adoption of email addresses for legal service in the early days of the internet, noting that blockchain wallet addresses could now serve a similar purpose in the digital age.
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