Celsius Sues Tether Over $2B Bitcoin Allegedly Lost in Fraudulent Transfers

Highlights:

• Celsius sues Tether for breaching contract terms through “Preferential Application Transfer,” causing substantial financial losses.
• The lawsuit claims Tether’s hasty liquidation of 39,542.42 BTC was commercially unreasonable and violated market practices.
• Celsius seeks to reclaim over $2 billion in Bitcoin, accusing Tether of unfairly benefiting from the liquidation during its bankruptcy.

Celsius Network Ltd. has filed a lawsuit against Tether Limited and its affiliates, alleging fraudulent transfers and contract breaches. The company aims to recover more than $2 billion in Bitcoin, alleging that Tether’s actions caused the loss during the months before its bankruptcy filing. Celsius sued Tether in the United States Bankruptcy Court for the Southern District of New York.

Tether Will Defend Itself Against “Shake Down” Litigation Commenced by Celsius
Learn more: https://t.co/6qjXD84EXh

— Tether (@Tether_to) August 10, 2024

Background of the Dispute

Celsius, a prominent crypto lender, had borrowed nearly $2 billion in Tether (USDT) from Tether Limited, backed by a significant amount of Bitcoin (BTC) as collateral. The lawsuit centers on Tether’s actions within the crucial 90 days leading up to Celsius’ bankruptcy filing on July 13, 2022.

According to Celsius, Tether demanded substantial new collateral totaling 15,658.21 BTC. Moreover, the firm secured new borrowings with an additional 2,228.01 BTC. Celsius claims that these actions unfairly improved Tether’s financial position at the expense of other creditors.

On June 13, 2022, Tether issued a final demand for additional collateral from Celsius. Under the terms of their agreement, the crypto lender was supposed to have ten hours to respond. However, Celsius alleges that Tether liquidated all of Celsius’ collateral—39,542.42 BTC—immediately without adhering to the agreed-upon waiting period. This action, referred to as the “Preferential Application Transfer,” allegedly allowed Tether to cover its exposure while leaving Celsius with significantly diminished assets.

Legal Claims and Tether’s Defense

The lawsuit claims that Tether’s actions amounted to a “fire sale” of Celsius’ Bitcoin at a time when the market was down. Consequently, the action resulted in significant financial losses for the crypto lender. The court filing notes that Tether sold the Bitcoin at an average price of $20,656.88 per BTC. However, this was below the market closing price of $22,487.39 on that date. Celsius argues that this premature liquidation prevented the lender from surviving the market crash. It also removed any chance for an automatic stay of bankruptcy to intervene.

In response, Tether’s CEO, Paolo Ardoino, defended the company’s actions, stating that Celsius’ management directed the liquidation and fully complied with the agreement between the two parties. Ardoino dismissed the lawsuit as baseless, asserting that Tether’s actions were prudent and aligned with market practices. He also emphasized that the lawsuit unfairly tries to place the burden of Celsius’ mismanagement on Tether. Celsius had given consent to the liquidation.

Notes:

1. This complaint shows a lack of basic understanding of the concepts of market slippage, block liquidation and risk management. Very poor arguments made. Also the liquidation was directed by Celsius management team and agreed each step in the way.

— Paolo Ardoino 🤖🍐 (@paoloardoino) August 10, 2024

The lawsuit seeks to recover the value of the Bitcoin or its equivalent in damages, alleging that Tether’s liquidation was commercially unreasonable and violated established market practices. Celsius contends that the sale should have been conducted over a longer period to secure better pricing and minimize the impact on the market.

Conversely, Tether has expressed confidence in its legal position and vows to vigorously defend itself against what it calls a “shakedown” lawsuit. The stablecoin issuer highlighted its strong financial position. Moreover, Tether noted that its consolidated equity was nearly $12 billion as of June 30, 2024. Tether asserts that its token holders will not be impacted even in the unlikely event of an unfavorable outcome.