A group blog by bankruptcy and commercial law professors on consumer credit, bankruptcy, and financial regulation.
HN commenters cite it for legal analysis of what happens to customer assets if a crypto exchange goes bankrupt, the GENIUS Act, and card interchange fees.
Nope.
> But wait, you bluster, the custodial agreement clearly says that I am the owner, that it’s my property, that I retain title to it. Yup, but that’s not how the law actually works. Just because they wrote that doesn’t mean it’s true.
> In fact, the exchanges are lulling the consumers with language claiming that the consumer "owns" the coins, when in fact the legal treatment is quite likely to be different in bankruptcy. In bankruptcy, it is likely to be treated as a debtor-creditor relationship, not a custodial (bailment) relationship.
> Not only are the customers likely mere creditors, but they are also likely general unsecured creditors, which means they will have to wait at the back of the line for repayment with everyone else. They will share on a pro rata basis whatever assets are leftover (if any) after the secured creditors and the priority creditors (including the expenses of running the bankruptcy) get paid, and any payment might not be for quite a while. That’s not a happy to place to be. Recoveries could be pennies on the dollar.
https://www.creditslips.org/creditslips/2022/02/what-happens-if-a-cryptocurrency-exchange-files-for-bankruptcy.html
Re: the house, no, most people don’t sit and read it: https://themortgagereports.com/39671/home-closing-what-you-need-to-read-what-you-can-skim .
Even professional investors with millions of dollars of investments don’t appear to read or negotiate the documents until it looks like it might matter: https://www.creditslips.org/creditslips/2022/03/odd-lots-podcast-the-narrowly-avoided-russian-debt-default.html
People just don’t care that much about legal documents until it looks like it will matter. People’s choice of individual contract provisions at most wage earning jobs, health care, rentals, or vacations is basically nil - they mostly don’t care to read it and so the writers of the contracts put in egregious terms.
> It took a 20 year antitrust lawsuit to bring a 2% fee down to 1.96% for 3 years?
It's worse than that.
See: https://www.creditslips.org/creditslips/2024/03/the-proposed-credit-card-interchange-settlement.html
"When the litigation began in 2005, average interchange fees were 1.75%. After the settlement, they will be at 2.19%"
"Credit card interchange fees after the settlement will be 25% higher than when the litigation began."
"When the litigation began in 2005, American merchants paid the highest interchange fees in the developed world. After the settlement, American merchants will still pay the highest interchange fees in the developed world."
The filing is posted here: https://www.creditslips.org/files/show_temp.pl-37.pdf
Their assets and liabilities are both between $100m and $500m.
What I found interesting is:
Are any bankruptcy cases
pending or being filed by a
business partner or an
affiliate of the debtor?
No
X Yes.
List all cases. If more than 1,
Debtor: Sea Girt LLC Relationship: Affiliate
More is described about this <60d old affiliate here: https://www.creditslips.org/creditslips/2021/01/nra-bankruptcy.html
If the GENIUS Act becomes the law, we're in for a FUBAR situation when a stablecoin issuer ends up insolvent. Even more concerning, if a bank custodian for a stablecoin issuer's reserves ends up insolvent, the claims of the stablecoin investors will come ahead of the bank depositors. That's right. Crypto comes ahead of ma-and-pa.
https://www.creditslips.org/creditslips/2025/05/the-genius-acts-insolvency-provisions-crypto-investors-come-ahead-of-bank-depositors.html
Customers with assets in custodial accounts of an exchange that goes bankrupt are likely general unsecured creditors, and the assets are probably property of the bankruptcy estate. https://www.creditslips.org/creditslips/2022/02/what-happens-if-a-cryptocurrency-exchange-files-for-bankruptcy.html
This means that, in the line of people to get paid out of those assets, you're not even at the front. Custodial accounts leave you with little protection.