In a significant development, a New York-based bankruptcy judge has given the nod to Celsius to proceed with the majority of its $4.3 billion lawsuit against Tether, the stablecoin issuer. The judge has sanctioned Celsius to continue its allegations that Tether illicitly sold off its bitcoin collateral.
The legal battle commenced in August 2024 when Celsius accused Tether of unlawfully initiating a fire sale of Celsius’s collateral, which consisted of 39,542 BTC valued at approximately $4.3 billion at current market rates. This was reportedly done before the stipulated 10-hour waiting period had lapsed, as per a court document filed on Monday.
Previously, Celsius had secured loans from Tether, using cryptocurrencies, including bitcoin, as collateral. During 2022, Tether had repeatedly asked Celsius to supply additional collateral to back its loans.
Chief Bankruptcy Judge Martin Glenn, who is handling the case, stated that the alleged oral consent given by former Celsius CEO Alexander Mashinsky to liquidate the collateral was “insufficient.” The judge highlighted that the failure to adhere to the 10-hour waiting period, as stated in the agreement between the companies, might still be considered a contract breach.
Upon being sued by Celsius last year, Tether denied any malpractice. Tether, in its defense, stated, “This groundless lawsuit against Tether is a classic example of ‘no good deed goes unpunished.’ Instead of acknowledging the legitimate agreement signed years before Celsius’s bankruptcy, this lawsuit attempts to wrongfully shift the burden of Celsius’s mismanagement and failure onto Tether.”
However, Monday’s court verdict dismissed one count (Count 4) in Tether’s favor, without prejudice. This specific count alleged that Tether violated its responsibility of “good faith and fair dealing” under the British Virgin Islands law. The dismissal by Judge Glenn came without prejudice, implying that Celsius’s lawyers can revise and resubmit the allegation, provided they offer sufficient factual evidence.
Celsius filed for bankruptcy in 2022 following the identification of a $1.2 billion discrepancy in its balance sheet. The company emerged from bankruptcy in November 2023 after the court approved its reorganization plan.
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