A recent ruling by a US Bankruptcy Court has given Celsius Network the green light to proceed with several claims in its lawsuit against stablecoin issuer Tether. The order, issued by Judge Martin Glenn on June 30, allows Celsius to pursue allegations that Tether violated US bankruptcy laws by receiving preferential transfers and unjustly liquidating tens of thousands of Bitcoin leading up to Celsius’s collapse in 2022.
The court ruling also permits Celsius to pursue breach of contract claims related to the early liquidation of collateral, despite a 10-hour waiting period outlined in the firm’s amended loan agreement. Specifically, the court:
1. Declined to dismiss Counts I and II on the avoidance of preferential transfers.
2. Declined to dismiss Counts V and VI regarding fraudulent transfer claims.
3. Allowed the breach of contract claim (Count III) to proceed, stating a determination could not be made.
4. Dismissed Count IV around a breach of the covenant of good faith and fair dealing without prejudice, allowing Celsius to amend it.
At the heart of the case is over 57,000 BTC that Celsius claims were improperly seized, liquidated prematurely, or transferred in excess of agreed terms. The firm argues that if these assets had been retained, their current value would exceed $4 billion. The Bitcoin transactions in question are divided into three categories:
1. Collateral Return Shortfall: Celsius claims that Tether returned only a fraction of the extra collateral posted by Celsius, leaving a significant amount in dispute.
2. Cross-Collateral Transfers: Celsius alleges that Tether retained an excessive amount of BTC from a separate deal involving securing new USDT loans.
3. Unauthorized Liquidation: The most significant portion of assets involves Tether’s alleged sale of BTC without honoring a contractual notice period, causing substantial immediate losses.
Celsius argues that these transactions unfairly favored Tether as a creditor, allowing them to recover nearly the full value of their loan while leaving other creditors behind. While the judge allowed core claims to proceed, other portions of the complaint were dismissed, including claims against specific Tether entities due to jurisdictional issues and allegations dependent on applying US bankruptcy law outside the country.
Despite the dismissals, this ruling sets the stage for what could be one of the crypto industry’s most significant asset recovery cases. Celsius now has the opportunity to pursue justice and potentially recover substantial assets in this ongoing legal battle.