Lawsuit Against Tether by Celsius Wins Judge's Approval for $4 Billion Case Continuation
In a significant development for the cross-border cryptocurrency industry, a U.S. bankruptcy court has given the green light for bankrupt crypto lender Celsius to proceed with its $4 billion lawsuit against stablecoin giant Tether.
At the heart of the dispute is an allegation 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, causing significant losses to Celsius's bankruptcy estate and benefiting Tether at the expense of other creditors.
The lawsuit stems from an arrangement where Celsius overcollateralized in Bitcoin to receive USDt from Tether. When Celsius imploded during the crypto winter of June 2022, losing billions of investors' funds, Tether liquidated the collateral to recoup its $812 million claim against Celsius amid rapidly falling crypto values. However, 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.
The court's ruling reinforces that U.S. Courts may assert jurisdiction over cases involving U.S.-based communications, personnel, or financial accounts, regardless of the jurisdiction of incorporation of the alleged wrongdoer. This decision could have significant implications for future cross-border cryptocurrency disputes, according to Peter Vas, a Partner at law firm Spencer West LLP.
The case also highlights the importance of clearly drafted contractual obligations that reflect the commercial objectives of the parties. Offshore cryptocurrency firms, especially those incorporated in the British Virgin Islands, need to be cautious about jurisdictional exposure and rigorous governance to avoid costly litigation in the USA.
Despite the ongoing litigation, Celsius has distributed $2.5 billion to 251,000 creditors since January 2024, covering 93% of all claims. However, approximately 121,000 creditors have not yet successfully claimed their portion of the distribution, though these are former users who are generally owed smaller amounts.
The court filing did not mention a response from Tether regarding the ruling. The resulting legal action 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 future. Stacy Elliott edited the article about the future of Celsius.
- The lawsuit against stablecoin giant Tether, worth around $4 billion in today's cryptocurrency market, stems from an allegation that Tether improperly liquidated 39,500 Bitcoin used as loan collateral in 2022.
- Celsius, a bankrupt crypto lender, claims that Tether violated contractual terms, including a 10-hour waiting period, causing significant losses to Celsius's bankruptcy estate and benefiting Tether at the expense of other creditors.
- The court's ruling in this cross-border cryptocurrency dispute reinforces that U.S. Courts may assert jurisdiction over cases involving U.S.-based communications, personnel, or financial accounts, regardless of the jurisdiction of incorporation of the alleged wrongdoer.
- Offshore cryptocurrency firms, especially those incorporated in the British Virgin Islands, need to be cautious about jurisdictional exposure and rigorous governance to avoid costly litigation in the USA, as the case between Celsius and Tether demonstrates.
- The ongoing litigation between Celsius and Tether has not affected Celsius's distribution of $2.5 billion to 251,000 creditors since January 2024, covering 93% of all claims, but approximately 121,000 creditors have not yet successfully claimed their portion of the distribution.
