Tether-Celsius lawsuit proceeds as judge rejects parts of Tether’s dismissal bid

A U.S. bankruptcy judge has ruled that Celsius Network’s lawsuit against Tether can proceed, rejecting key arguments Tether raised to dismiss the case.

A U.S. bankruptcy judge in the Southern District of New York has ruled that Celsius Network’s lawsuit against Tether (USDT) can proceed, granting in part and denying in part Tether’s motion to dismiss, according to a memorandum opinion and order filed in the Celsius bankruptcy case on June 30.

Celsius Network accused Tether of improperly liquidating over 39,500 Bitcoin (BTC) in June 2022 as crypto prices crashed. The 39,500 BTC was put up as collateral for loans Celsius took from Tether, but the crypto lender claims Tether executed a rushed “fire sale” at an average price of $20,656 per BTC — well below market value — and failed to honor a contractual 10-hour waiting period before selling collateral.

Celsius claims the liquidation cost it over $4 billion at current Bitcoin prices and constituted breach of contract, bad faith dealing, and fraudulent and preferential transfers avoidable under U.S. bankruptcy law.

In a blog post, Tether described the lawsuit as “baseless,” stating: 

“Under the agreement, Celsius posted bitcoin (BTC) to Tether as collateral. As the price of BTC began to fall in June 2022, the agreement required Celsius to post additional collateral to avoid the liquidation of its BTC. When Celsius chose not to post additional BTC it directed Tether to liquidate the BTC collateral Tether held in order to close out its roughly 815 million USD₮ position with Tether.”

Celsius, however, contends that Tether sold the BTC at a price that nearly matched the outstanding debt — without giving Celsius a chance to post more collateral, as the agreement allegedly required.

In August last year, Tether sought to dismiss the lawsuit, arguing that its operations in the British Virgin Islands and Hong Kong placed the case outside U.S. jurisdiction, calling the claims an impermissible extraterritorial application of U.S. law. 

However, the judge found Celsius presented a plausible case that the alleged misconduct involved U.S.-based communications, personnel, and financial accounts, making the claims sufficiently domestic. While some counts were dismissed, Celsius’s core claims — including breach of contract and fraudulent transfer —will move forward in court.