NY Bankruptcy Judge Gives Celsius the Green Light to Pursue $4.3B Lawsuit Against Tether
Celsius Network’s $4 billion lawsuit against Tether has been largely approved by a New York bankruptcy court. The case centers around Tether’s liquidation of approximately 40,000 bitcoins held as collateral for a loan from Celsius in June 2022, shortly before Celsius froze withdrawals.
Celsius alleges that Tether’s actions constituted a breach of contract, arguing that insufficient time was given to meet collateral demands, despite Tether possessing ample Bitcoin reserves. They contend that this liquidation, occurring near the market bottom, significantly harmed Celsius and benefited Tether exclusively. Celsius’ lawyers assert that had they been afforded the contractual 10-hour grace period to replenish collateral, the liquidation could have been avoided.
Tether vehemently disputes these claims, characterizing the lawsuit as a baseless attempt to shift blame for Celsius’ mismanagement onto them. Tether’s statement emphasizes that Celsius executives, including former CEO Alex Mashinsky, directed the liquidation to settle a substantial USDT debt.
The court’s decision largely sides with Celsius. Chief Bankruptcy Judge Martin Glenn of the Southern District of New York ruled that Mashinsky’s alleged verbal authorization for the liquidation was insufficient to justify Tether’s actions. The judge acknowledged that not providing the stipulated 10-hour window for collateral replenishment could still constitute a breach of contract, irrespective of verbal permission.
Only one count of the amended complaint, alleging breach of the covenant of good faith and fair dealing under British Virgin Islands law, was dismissed. However, this dismissal was without prejudice, allowing Celsius to amend their claim with information that better aligns with BVI legal requirements. This decision allows Celsius to proceed with the bulk of its lawsuit against Tether, potentially recovering substantial funds. The outcome will likely have significant implications for the cryptocurrency industry’s legal landscape and the use of stablecoins as collateral.
