Celsius Wins Approval to Pursue $4 Billion Lawsuit Against Tether

A New York bankruptcy court has granted Celsius the approval to proceed with the majority of its $4 billion lawsuit against Tether, a stablecoin issuer. This decision comes after Celsius filed a lawsuit against Tether last year, alleging that Tether improperly liquidated nearly 40,000 bitcoins, which were being held as loan collateral in June 2022. This liquidation occurred just before Celsius halted withdrawals, and the bitcoins were worth over $4.3 billion at today’s prices.

Celsius' lawyers argued that Tether did not provide sufficient time for Celsius to meet its collateral demands. They claimed that Celsius had enough Bitcoin on its balance sheet to satisfy these demands, especially since Celsius had instituted a 'pause' on customer withdrawals, which allowed it to retain and access a significant amount of Bitcoin. Celsius' lawyers further stated that if given the opportunity to meet the collateral demand, which it had a contractual right to do, it could have avoided the disposition of its Bitcoin at near the bottom of the cryptocurrency market. Instead, the disposition was carried out for the benefit of just one creditor: Tether.

Tether, on the other hand, has called the lawsuit a "shakedown" and a "shameless litigation money grab." They claimed that Celsius executives directed the liquidation of its BTC collateral held by Tether in order to close out its roughly 815 million USDT position with the company. Tether argued that the lawsuit seeks to improperly impose the costs of Celsius’ mismanagement and failure on Tether.

The judge overseeing the case, Chief Bankruptcy Judge Martin Glenn of the Southern District of New York, disagreed with Tether's stance. In his order, he argued that the alleged oral permission given to Tether to liquidate Celsius’ bitcoin collateral by then-CEO Alex Mashinsky was "insufficient." He also stated that not giving Celsius the 10-hour window to post collateral allotted by the two firms’ contract could still be a breach of contract, verbal permission or not.

In his June 30th order, Judge Glenn granted the dismissal of only one count of the amended complaint, Count 4, which alleged that Tether breached the “covenant of good faith and fair dealing” under British Virgin Islands law. For that count, Glenn decided to dismiss it without prejudice, giving Celsius’ lawyers the opportunity to amend it with “facts sufficient to bring themselves within the requirements of BVI law.”

This ruling allows Celsius to continue its pursuit of the $4.3 billion lawsuit against Tether, which could have significant implications for the cryptocurrency industry. The outcome of this lawsuit could set a precedent for how stablecoin issuers handle collateral liquidation in the event of a borrower's insolvency. It also highlights the importance of clear contractual agreements and the potential consequences of breaching them. The case is ongoing, and further developments are expected as both parties continue to present their arguments in court.