A New York bankruptcy court has granted Celsius Network the authority to proceed with the majority of its $4.3 billion lawsuit against Tether, the issuer of the largest stablecoin in the cryptocurrency market. This decision, documented in a recent court filing, marks a significant development in the ongoing legal battle between the two crypto giants.
The lawsuit, initially filed by Celsius last year, accuses Tether of improperly liquidating nearly 40,000 bitcoins, valued at over $4.3 billion in today’s market. These bitcoins were held as loan collateral in June 2022, just before Celsius suspended customer withdrawals. Celsius claims that Tether did not provide sufficient time to meet collateral demands, despite having enough Bitcoin on its balance sheet due to the pause on customer withdrawals.
Background of the Legal Dispute
The conflict between Celsius and Tether began when Celsius halted withdrawals, leading to a liquidity crisis. Celsius alleges that Tether’s actions forced the liquidation of its Bitcoin holdings at a time when the cryptocurrency market was at a low point, thus benefiting Tether at Celsius’s expense.
Celsius’s legal team argues that if given the chance to meet the collateral requirements, the company could have avoided the forced sale of its Bitcoin assets. “If Celsius had been given the opportunity to meet the collateral demand — which it had a contractual right to do — it could have been able to avoid the disposition of its Bitcoin at near the bottom of the cryptocurrency market,” Celsius’s lawyers stated.
Tether’s Response and Court’s Ruling
In response to the lawsuit, Tether has described the claims as “baseless” and a “shameless litigation money grab.” Tether maintains that Celsius executives themselves directed the liquidation of the Bitcoin collateral to settle an outstanding position of approximately 815 million USDT with Tether.
However, Chief Bankruptcy Judge Martin Glenn of the Southern District of New York ruled against Tether’s argument, stating that the alleged verbal permission given by Celsius’s former CEO, Alex Mashinsky, was insufficient to justify the liquidation. The judge emphasized that failing to provide Celsius with the contractually agreed 10-hour window to post collateral could be considered a breach of contract.
“The alleged oral permission given to Tether to liquidate Celsius’ bitcoin collateral was insufficient,” Judge Glenn noted in his order.
Implications and Next Steps
The court’s decision to allow Celsius to proceed with its lawsuit, while dismissing one count related to the “covenant of good faith and fair dealing” under British Virgin Islands law, leaves the door open for Celsius to amend its complaint. This development could have broader implications for the cryptocurrency industry, particularly regarding the enforcement of contractual obligations and the handling of collateral in digital asset transactions.
As the case progresses, it will be closely watched by industry stakeholders and legal experts. The outcome could set precedents for how similar disputes are handled in the future, potentially influencing the regulatory landscape for crypto lending and stablecoin issuance.
Meanwhile, the cryptocurrency market continues to grapple with volatility and regulatory scrutiny. The resolution of this high-profile case could provide insights into the legal frameworks governing digital asset transactions and the responsibilities of major players in the sector.
For now, Celsius and Tether remain locked in a legal battle that highlights the complexities and risks inherent in the rapidly evolving world of cryptocurrencies. As both companies prepare for the next stages of the lawsuit, the industry awaits further developments that could shape its future trajectory.
