Celsius Wins Court Approval for $4 Billion Tether Lawsuit

A U.S. bankruptcy judge has ruled that the bankrupt crypto lender Celsius can proceed with its $4 billion lawsuit against the stablecoin giant Tether. The lawsuit alleges that Tether improperly liquidated 39,500 Bitcoin, worth approximately $4 billion today, that was held as loan collateral in 2022. Celsius claims that Tether violated contractual terms, including a required 10-hour waiting period before liquidating the assets.

Despite the ongoing litigation, Celsius has made significant progress in distributing funds to its creditors. Since January 2024, the firm has distributed $2.5 billion to 251,000 creditors, covering 93% of all claims. This distribution has been part of a repayment plan that began in January 2024, aimed at repairing the damage caused to former clients during the crypto winter of June 2022.

Tether had previously dismissed the lawsuit as "baseless" and a "shakedown" when it was filed in August last year. However, the judge granted some elements of Tether’s motion to dismiss, including allegations that hinge on one of Tether’s subsidiaries being based in the British Virgin Islands and therefore subject to the duty of “good faith and fair dealing” as defined under the island’s law.

The judge found that Tether’s knowledge of Celsius’s insolvency at the time they chose to sell the Bitcoin did not provide an “independent basis” for liquidation, nor did verbal approval from Celsius’s CEO Alex Mashinsky. This ruling could have significant implications for future cross-border cryptocurrency disputes, as it reinforces that U.S. Courts may assert jurisdiction if the alleged misconduct involves U.S.-based communications, personnel, or financial accounts, irrespective of the jurisdiction of incorporation of the alleged wrongdoer.

Peter Vas, a Partner at law firm Spencer West LLP, believes that this development will be of concern to offshore cryptocurrency firms incorporated in the British Virgin Islands and elsewhere. These firms must carefully navigate jurisdictional exposure and ensure rigorous governance to avoid costly litigation in the USA. Vas also notes that the ruling is a reminder that contractual obligations must be clearly drafted to reflect the commercial objectives of the parties.

Celsius, which at one point had more than $25 billion in assets under management, imploded during the crypto winter of June 2022, losing billions of investors' funds and severely impacting many amateur and high-street investors. The resulting legal action eventually led to criminal fraud charges and a 12-year prison sentence for former CEO Alex Mashinsky, who has forfeited any right to benefit from Celsius’s assets in the future.