Lummis: CLARITY Act would shield customer crypto in bankruptcy

Sen. Cynthia Lummis said the CLARITY Act would require crypto platforms to keep customer cash and digital tokens separate from company assets so those holdings remain the property of users if a platform collapses. She framed the proposal as a response to legal disputes that arose in recent crypto bankruptcies.

Lummis outlined the customer-protection language on X on July 20 and pointed to the Celsius and Voyager cases as examples. In January 2023, U.S. Bankruptcy Judge Martin Glenn ruled that cryptocurrency placed in Celsius’ Earn accounts became property of the company under its terms of use, affecting about 600,000 accounts and roughly $4.2 billion in assets at the time of filing. Voyager customers were treated as unsecured creditors when that lender entered bankruptcy, with recoveries set through restructuring processes.

Under the CLARITY Act provisions Lummis described, covered digital-asset intermediaries would be required to treat customer cash and tokens as customer property and to segregate those assets from corporate holdings. Firms would also have to keep records that identify customer holdings and would be barred from using customer assets for their own benefit or for others without authorization.

The bill’s language would create a federal rule that affirms customer title to deposited crypto and cash, with the aim of reducing ownership disputes in insolvency proceedings. Lummis has said the measure would also clarify the roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission, strengthen anti-money-laundering standards and add consumer protections intended to keep crypto businesses operating in the United States.

The House approved the CLARITY Act; the Senate has not yet taken it up. Lummis said Senate staffers spent months negotiating the text before introducing the legislation and that the next step is whether senators will preserve the customer-property provisions.

Industry participants and policy observers have raised questions about how the bill’s custody rules would interact with state trust laws and existing federal regulations, and about which types of intermediaries would be covered and how enforcement would work. Supporters say codified customer-property protections could lower litigation risk in insolvency cases; critics point to implementation details that remain unresolved.

“When Celsius and Voyager went bankrupt, customer deposits didn’t stay customer deposits,” Lummis wrote on X. “They became assets in a bankruptcy pool, fought over by creditors who had never even heard of the customers who owned them. The CLARITY Act changes the rule so your crypto stays yours, even if the company fails.”