Tether in Trouble? Celsius Granted Go-Ahead for $4B Bitcoin Lawsuit

A U.S. bankruptcy judge greenlit Celsius Network’s $4B lawsuit against Tether, alleging Tether’s 2022 “fire sale” of 39,500 BTC at $20,656 violated a 10-hour notice period, causing massive losses.
Tether in Trouble? Celsius Granted Go-Ahead for $4B Bitcoin Lawsuit
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Key Insights

  • A U.S. bankruptcy judge has allowed Celsius Network to proceed with its $4 billion lawsuit against Tether.

  • Celsius claims Tether violated agreements by fraudulently selling Bitcoin during the market crash without a 10-hour waiting period.

  • Tether's motion to dismiss the case due to lack of U.S. jurisdiction was rejected.

  • The outcome of this case could massively affect how crypto loan agreements are enforced in the US.

One of the biggest legal battles in the crypto space could be brewing.

A U.S. bankruptcy judge has just ruled that Celsius Network can move forward with its lawsuit against Tether. 

The case revolves around Tether’s liquidation of nearly 40,000 Bitcoin (worth over $4 billion at today’s prices) during Celsius’s 2022 collapse.

Celsius, as it turns out, claims that Tether violated agreements and fraudulently sold off these tokens.

Here are the details of the incoming war between both companies and what it means for the crypto space as a whole.

The Collapse of a Crypto Giant

Celsius was once one of the largest crypto lending platforms in the world. 

At its peak, it managed billions of dollars in customer assets and attracted hundreds of thousands of users. 

However, in June 2022, the firm collapsed due to issues with market pressure, mismanagement and risky business practices.

Shortly afterward, Celsius filed for bankruptcy and kicked off an 18-month restructuring process. 

Its former CEO, Alex Mashinsky, has since pleaded guilty to fraud charges and is awaiting sentencing. 

The company officially exited bankruptcy on January 31 of last year and has repaid around 93% of its creditors. 

Its former CEO, Alex Mashinsky, was also found guilty earlier this year and was sentenced to 12 years behind bars.

Mashinsky sentenced to 12 years | Source: Twitter

Mashinsky sentenced to 12 years | Source: Twitter

Still, the legal battle is far from over, and Celsius wants its pound of flesh from Tether.

What Was Tether's Offence?

The entire lawsuit revolves around Celsius’s claim that Tether fraudulently liquidated over 39,500 BTC that was held as collateral. 

This liquidation took place in June 2022, right when Bitcoin was in the middle of one of its harshest crashes.

Celsius alleges that Tether executed a “fire sale,” and sold the Bitcoin at an average price of $20,656.

An incoming $4 Billion lawsuit | Source: Twitter

An incoming $4 Billion lawsuit | Source: Twitter

This was far below its market value at the time, and Tether “allegedly” dumped the tokens to recover a debt of $812 million. 

According to the complaint, this sale was executed by Tether without following the agreed 10-hour waiting period in their lending agreement. 

In addition, Celsius claims that Tether transferred the proceeds to its own Bitfinex accounts after wrongfully selling the coins.

Celsius now alleges a breach of contract, violation of good faith and fair dealing (under British Virgin Islands law), and fraudulent transfers under U.S. bankruptcy law.

Jurisdiction and Legal Standing

Tether had initially filed a motion to dismiss the case. According to its CEO Paolo Ardoino, the U.S. court lacks jurisdiction and cannot move further with prosecuting the company. 

Ardoino publicly dismissed the case, saying that Tether is incorporated in the British Virgin Islands and Hong Kong. 

Because of this, the case involved foreign parties and should not fall under U.S. law.

However, Judge Martin Glenn rejected this defense. 

He agreed that Celsius presented convincing evidence that Tether’s actions were domestic in nature, and as such, the US has the jurisdiction it needs to prosecute.

While some of Celsius’s claims were dismissed, the court allowed the breach of contract, fraudulent transfer and preference claims to proceed. 

This is a major win for Celsius, and could be a massive blow for Tether if it loses.

What's at Stake?

The lawsuit claims that the value of the Bitcoin that Tether sold has now grown to over $4 billion. 

The question here remains: Why is Celsius pursuing the lawsuit if it has already repaid most of its creditors? 

The two biggest reasons why Celsius is taking the legal route could involve financial recovery for the remaining creditors.

Either this, or Celsius is probing for evidence of deeper misconduct through legal discovery.

Still, Tether CEO Paolo Ardoino has dismissed the lawsuit as a “shakedown.” He maintains that the company acted within its rights and that the liquidation was necessary, considering Celsius’s insolvency at the time. 

Overall, whatever the outcome of this case, it could set the ball rolling for how crypto loan agreements will be enforced during similar situations.

Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

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