New York judge approves Celsius' request to send legal notices via NFT airdrops

A bankruptcy judge in the Southern District of New York has approved Celsius Network's request to send legal notices via non-fungible token (nft) airdrops.

Celsius, currently in insolvency proceedings, is seeking to recover funds from allegedly fraudulent transfers to unidentified digital wallets.

Alternative solution

Following its bankruptcy, the company filed suit to void the fraudulent transfers and recover additional funds for its creditors. However, due to the anonymous nature of cryptocurrency transactions, it has not been able to identify the people behind the digital wallets involved in these transfers.

To solve this problem, Celsius proposed a new solution that involves using nfts to send 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 sent directly to the digital wallets associated with the disputed transfers.

The platform has also engaged the services of FTI Consulting to ensure that the nfts are received and accessed properly. FTI will confirm that digital assets are received on-chain, track the exact date and time they are accessed, and monitor website traffic to ensure that real people, rather than automated robots, open the hyperlinks.

FTI has also traced the transfers to the target wallets, verifying that they have remained active since the transactions in question and are likely controlled by the same people.

This information and the inability to locate the defendants by traditional means led the court to determine that conventional notification methods were impracticable. The judge ruled that delivering the legal notices via nft would be the most effective way to notify the defendants of the litigation.

Legal Precedent Established for crypto and Blockchain

Under New York law, alternative methods of service are permitted when traditional methods are impracticable, as long as they meet constitutional standards of due process. According to a <a target="_blank" href="https://kelman.law/a-new-frontier-for-crypto-court-authorizes-service-of-process-through-nft-airdrop/” target=”_blank” rel=”noopener” data-wpel-link=”external”>report By 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 delivering legal notices via nfts sent directly to the wallets involved in the fraudulent transfers. The court found this method of informing the defendants of the legal action against them reasonable.

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 services 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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