A U.S. bankruptcy judge has cleared the way for Celsius Network’s lawsuit against Tether to proceed, dealing a setback to Tether’s attempts to have the case thrown out.
In a ruling filed on June 30 in the Southern District of New York, the judge granted parts of Tether’s motion to dismiss but ultimately decided that Celsius has enough grounds for key parts of its case to go forward.
At the heart of the dispute is Celsius’s claim that Tether wrongly liquidated over 39,500 Bitcoin (BTC) back in June 2022, during a period of severe crypto market turmoil. Those bitcoins were collateral for loans Celsius had taken out from Tether. According to Celsius, Tether conducted what amounted to a rushed “fire sale,” selling the BTC at an average price of $20,656 well below the market rate at the time and allegedly ignoring a contractual 10-hour waiting period before selling the collateral.
Celsius says this rapid liquidation cost the company over $4 billion based on current Bitcoin prices, and accuses Tether of breaching their contract, acting in bad faith, and engaging in fraudulent and preferential transfers that should be undone under U.S. bankruptcy law.
Tether has pushed back hard against the accusations, calling the lawsuit “baseless.” In a blog post, the company explained its side of the story:
“Under the agreement, Celsius posted bitcoin (BTC) to Tether as collateral. As the price of BTC began to fall in June 2022, the agreement required Celsius to post additional collateral to avoid the liquidation of its BTC. When Celsius chose not to post additional BTC, it directed Tether to liquidate the BTC collateral Tether held in order to close out its roughly 815 million USD₮ position with Tether.”
But Celsius argues that Tether moved too quickly, selling the BTC at a price that conveniently matched the size of Celsius’s debt without giving the company the opportunity to shore up its collateral, as the contract allegedly required.
Tether tried to have the lawsuit dismissed last August, claiming the case shouldn’t be heard in the U.S. because Tether’s operations are based in the British Virgin Islands and Hong Kong. Tether argued that Celsius was improperly trying to apply U.S. law outside its jurisdiction.
However, the judge disagreed, finding that Celsius had presented a plausible argument that the events in question involved U.S.-based personnel, financial accounts, and communications. That makes the case sufficiently tied to the U.S. to proceed.
While the judge did dismiss some of Celsius’s claims, the most significant parts of the case including allegations of breach of contract and fraudulent transfer will now move forward in court.
This means Celsius and Tether are headed for further legal battles, ensuring this high-stakes crypto clash is far from over.
