Celsius $4B Bitcoin Lawsuit Against Tether Gets Court Approval

US Bankruptcy Judge Denies Tether's Dismissal Motion

A US bankruptcy judge has ruled that Celsius Network's multibillion-dollar lawsuit against Tether can proceed to trial. The court denied Tether's motion to dismiss claims alleging improper liquidation of Bitcoin collateral during Celsius's bankruptcy proceedings.

The lawsuit, filed in New York federal court, centers on allegations that Tether executed an unauthorized fire sale of cryptocurrency assets belonging to the collapsed crypto lending platform.

Celsius Alleges $4 Billion Loss from Bitcoin Fire Sale

According to court documents filed Monday, Celsius Network claims Tether conducted a fire sale of over 39,500 Bitcoin in June 2022. The crypto lender alleges this liquidation occurred without following proper procedures outlined in their lending agreement.

The lawsuit claims Tether sold the Bitcoin collateral at an average price of $20,656 per coin, below prevailing market rates at the time. Celsius argues this premature liquidation cost the company over $4 billion in Bitcoin value at current market prices.

Breach of Contract and Fraudulent Transfer Claims

Celsius's legal complaint outlines several key allegations against Tether:

The crypto lender claims Tether breached their lending agreement by failing to provide adequate notice before liquidating collateral. Celsius argues Tether violated the 10-hour waiting period required before executing margin call liquidations.

The lawsuit also alleges Tether's actions constituted fraudulent and preferential transfers under US Bankruptcy Code. These claims suggest Tether improperly prioritized its own interests over other creditors during Celsius's financial collapse.

Jurisdictional Dispute Over US Court Authority

Tether attempted to dismiss the lawsuit by arguing US courts lacked jurisdiction over the matter. The stablecoin issuer pointed to its incorporation in the British Virgin Islands and Hong Kong as reasons why US bankruptcy law shouldn't apply.

However, the federal judge rejected this argument. The court found that Celsius successfully demonstrated Tether's operations involved sufficient US-based activities to establish jurisdiction.

The ruling noted that Tether's alleged misconduct included communications with US personnel and use of American financial accounts, creating domestic ties sufficient for US court oversight.

Celsius Network's Bankruptcy Exit and Creditor Repayment

Celsius Network officially exited bankruptcy proceedings on January 31, 2024, following an 18-month restructuring process. The crypto lending platform, which was once among the industry's largest lenders, is now focused on repaying creditors through its reorganization plan.

The company's collapse in 2022 sent shockwaves through the cryptocurrency lending sector, highlighting the risks associated with yield-generating crypto products and margin trading operations.

Tether's Response to Legal Challenges

In August 2024, Tether had sought complete dismissal of the lawsuit, arguing that US courts lacked proper jurisdiction and that Celsius failed to state valid legal claims. While the court dismissed some minor counts, it allowed the primary breach of contract and fraudulent transfer claims to proceed.

The stablecoin issuer has maintained its position that the liquidation was conducted according to standard industry practices and existing contractual obligations.

Impact on Cryptocurrency Lending Industry

This legal battle represents one of the largest disputes between major cryptocurrency companies following the 2022 market downturn. The case could set important precedents for how crypto lending agreements are interpreted and enforced.

The lawsuit highlights ongoing concerns about transparency and proper procedures in cryptocurrency lending and collateral management. Industry observers are closely watching the case for its potential impact on future lending practices.

Tether's Continued Business Operations

Despite the ongoing litigation, Tether continues expanding its cryptocurrency operations. The company has been increasing its Bitcoin holdings and recently became the majority owner of Twenty One Capital, making it the world's third-largest corporate Bitcoin holder.

Recent reports indicate Tether transferred nearly 37,230 Bitcoin, worth approximately $3.9 billion, to addresses associated with its expanding cryptocurrency investment portfolio.

What's Next in the Legal Proceedings

With the court's ruling allowing key claims to proceed, the case will now move toward discovery and potential trial proceedings. Both companies will need to present evidence supporting their respective positions regarding the June 2022 Bitcoin liquidation.

The outcome of this case could have significant implications for both companies and the broader cryptocurrency lending industry's approach to collateral management and creditor relationships during financial distress.