tl;dr
Bankrupt crypto lender Celsius can continue its $4 billion lawsuit against stablecoin company Tether after a U.S. bankruptcy judge allowed parts of the case to proceed. The judge rejected Celsius's claims against a Tether subsidiary in the British Virgin Islands but found Tether violated contractual...
Bankrupt crypto lender Celsius can proceed with its $4 billion case against stablecoin giant Tether, following a ruling by a U.S. bankruptcy judge in the Southern District of New York. Chief United States bankruptcy judge Martin Glenn approved parts of Tether’s motion to dismiss, specifically rejecting Celsius's claims related to one of Tether’s subsidiaries based in the British Virgin Islands being subject to the duty of “good faith and fair dealing” under the island’s law. Tether had previously labeled the lawsuit as “baseless” and a “shakedown” when it was filed in August 2023.
Celsius, once managing more than $25 billion in assets, collapsed during the crypto winter of June 2022, resulting in significant losses for investors and sparking legal actions that culminated in criminal fraud charges. Former CEO Alex Mashinsky received a 12-year prison sentence and forfeited any rights to Celsius’s assets. In the 2024 lawsuit, Celsius alleges that Tether liquidated 39,500 Bitcoin—valued at approximately $4 billion today—that were used as loan collateral. Celsius contends Tether sold off the collateral in 2022 to recover $812 million amid rapid crypto value declines but failed to adhere to contractual terms.
The court filing asserts Tether ignored a mandatory 10-hour waiting period before liquidating assets after values dropped below a set threshold. Judge Glenn determined that Tether’s knowledge of Celsius’s insolvency and verbal approval from Mashinsky did not provide sufficient grounds for immediate liquidation. Legal expert Peter Vas from Spencer West LLP commented that the ruling could set a significant precedent for cross-border cryptocurrency disputes, emphasizing that U.S. courts may claim jurisdiction based on misconduct involving U.S.-based communications, personnel, or financial accounts, regardless of where the accused entity is incorporated.
Vas highlighted the ruling as a warning to offshore crypto firms, especially those incorporated in the British Virgin Islands, to carefully manage their legal exposure and governance to avoid expensive U.S. litigation. He also underscored the need for clear contractual terms reflecting parties’ commercial objectives. Tether has not publicly responded to the ruling.
Meanwhile, Celsius has made strides in restoring value to former clients through a repayment plan beginning in January 2024. As of August 2024, the company has returned $2.5 billion to 251,000 creditors through multiple payout rounds, covering 93% of claims and reaching nearly two-thirds of eligible creditors. However, around 121,000 creditors—mostly those owed smaller amounts—have yet to claim their distributions.