Regulation

Celsius Sues Tether To Clawback $2B Bitcoin Lost In ‘Fraudulent’ Transfers

Published

1 month ago

August 10, 2024

Celsius Network Ltd. has filed a lawsuit against Tether and its affiliated entities. The lawsuit alleges that the USDT issued conducted “fraudulent” and “preferential” transfers of Bitcoin (BTC) amounting to over $2 billion today. The complaint, lodged in federal bankruptcy court, seeks to reclaim the collapsed estate’s lost Bitcoin due to Tether’s actions during a critical period leading up to the firm’s bankruptcy.

Celsius’ Allegations Against Tether

Celsius, a prominent crypto lender, entered into a loan agreement with Tether Limited in 2020. This arrangement allowed the lender to borrow stablecoins, specifically Tether (USDT) and Euro Tether (EURT), at low-interest rates. In return, the crypto lender posted substantial collateral, including Bitcoin, to secure these loans.

At its peak, the firm had borrowed nearly $2 billion in USDT from Tether, backed by tens of thousands of BTC. The lawsuit focuses on actions taken by Tether during the ninety-day period before the crypto lender filed for bankruptcy on July 13, 2022.

According to the complaint, the USDT issuer demanded and received significant amounts of new collateral from the crypto lender. This totaled 15,658.21 Bitcoin, and further secured new borrowings with an additional 2,228.01 BTC. These actions, characterized as “Preferential Top-Up Transfers” and “Preferential Cross-Collateralization Transfers,” are claimed to have unfairly improved Tether’s position at the expense of other creditors.

Preferential Application Transfer & Breach of Contract

On June 13, 2022, Tether issued a final demand for additional collateral. The crypto lender, in accordance with their agreement, had ten hours to respond. However, stablecoin issuer proceeded to apply the entirety of Celsius’ collateral, i.e., 39,542.42 BTC immediately, without granting the contractually stipulated time.

This action, referred to as the “Preferential Application Transfer,” allegedly allowed Tether to cover its exposure. However, the bankrupt crypto lender was “robbed” of its remaining BTC at a low market value.

Moreover, the lawsuit argues that Tether’s breach of the contract’s 10-hour waiting period resulted in a “fire sale” of the now-bankrupt estate’s Bitcoin, with all 39,542.42 BTC applied against Celsius’ outstanding debt. Tether’s valuation of BTC at $816.82 million is significantly less than its current worth of more than $2 billion.

This caused substantial financial damage to thr crypto lender. The court filing dated August 9 states that Tether sold this Bitcoin at an average price of $20,656.88 each, notably below the market closing BTC price of $22,487.39 on that date.

Crypto Lender Demands Clawback

The lawsuit also contends that Tether’s liquidation of the crypto lender’s Bitcoin was commercially unreasonable. In addition, the complaint highlights that established market practices dictate that such a large block of BTC should be sold over a longer period to minimize price impact and secure better pricing.

Hence, the stablecoin issuer’s actions allegedly violated these practices by selling the BTC hastily and at prices lower than the actual market rates. Furthermore, the premature liquidation barred Celsius from withstanding the market crash. It also eliminated the chance for the automatic stay of bankruptcy to intervene.

Hence, the lawsuit seek “recover” the preferential and fraudulent transfers of Bitcoin. In addition, the crypto lender wants to claim damages for Tether’s alleged breach of contract. Thus, the bankrupt estate is demanding that the court order Tether to return the value of the BTC or its equivalent amount in damages.