Celsius Wins Partial Victory in $4 Billion Bitcoin Lawsuit Against Tether

A US bankruptcy judge has ruled that Celsius Network’s multibillion-dollar lawsuit against Tether can proceed, partially denying Tether’s attempt to dismiss claims that it improperly liquidated Celsius’s Bitcoin collateral during the crypto lender’s collapse. The lawsuit, filed in New York, alleges that Tether executed a “fire sale” of over 39,500 Bitcoin in June 2022, applying the proceeds against Celsius’s $812 million debt without following agreed-upon procedures.

Celsius claims that Tether’s actions breached their lending agreement, violated “good faith and fair dealing” under British Virgin Islands law, and constituted fraudulent and preferential transfers avoidable under the US Bankruptcy Code. The complaint centers on a margin call Tether issued as Bitcoin prices plunged. Celsius argues that Tether sold its collateral before a 10-hour waiting period, liquidating the BTC at an average price of $20,656, which was below market levels, and later transferring the assets to its own Bitfinex accounts.

The filing alleges that Tether’s liquidation cost Celsius over $4 billion worth of BTC at current prices. Celsius further claims that Tether’s actions involved US-based communications, personnel, and financial accounts, establishing sufficient ties for US jurisdiction despite Tether’s incorporation in the British Virgin Islands and Hong Kong. The judge agreed that Celsius made a plausible case that the transfers and alleged misconduct were “domestic” in nature, rejecting Tether’s argument that the claims represent an impermissible extraterritorial application of US bankruptcy law.

In August 2024, Tether sought to dismiss the lawsuit entirely, claiming that the US court lacked jurisdiction and that Celsius’s allegations fail to state valid claims. While the court dismissed some counts, it allowed Celsius’s key breach of contract, fraudulent transfer, and preference claims to proceed. Celsius, once among crypto’s largest lenders, officially exited bankruptcy on Jan. 31, 2024, after an 18-month restructuring process. The company is now repaying creditors.

This legal battle highlights the ongoing tensions and regulatory scrutiny within the cryptocurrency industry, particularly concerning the stability and transparency of major players like Tether. The outcome of this lawsuit could set a precedent for future legal actions involving cryptocurrency liquidations and market manipulation. The judge's decision to let the lawsuit move forward is a critical development, as it allows Celsius to pursue its claims against Tether in court. This development underscores the importance of adhering to agreed-upon procedures and maintaining transparency in the cryptocurrency market.