A bankruptcy court in the US has ruled that Celsius's lawsuit against Tether can proceed. Celsius alleges that the USDT stablecoin issuer violated their contract to liquidate $4 billion worth of Bitcoin when it became insolvent.
Some of Celsius's creditors hope that the investigation will clarify why Tether processed these assets so quickly. However, it is unclear how the company would use these funds if they win the lawsuit, as they have already repaid most of their creditors.
Tether Faces $4 Billion Lawsuit
Celsius's bankruptcy in 2022 was one of the largest collapses in cryptocurrency history, shocking the DeFi ecosystem.
Last year, CEO Alex Mashinsky pleaded guilty to fraud charges and faces 20 years in prison, while Celsius is suing Tether over some disputed Bitcoin transactions. Today, Judge Martin Glenn ruled that this lawsuit can proceed.
Essentially, Celsius claims that Tether violated previous agreements to liquidate 39,500 BTC, currently worth around $4 billion.
The USDT stablecoin issuer held these assets as collateral for a loan and processed them to recover an $812 million debt when Celsius collapsed. However, Celsius asserts that this move was illegal, as it violated the 10-hour waiting period specified in the contract.
Why is this important? Celsius has repaid 93% of its creditors, and its founder/CEO is now in jail. It is unclear how Celsius could use the $4 billion, and Tether's CEO, Paolo Ardoino, condemned the lawsuit as extortion.
However, Celsius's creditors like Otis Davis have reacted enthusiastically to this announcement. Specifically, he believes an official legal battle could clarify exactly why Tether ignored the waiting period, potentially revealing evidence of past fraud.
"The lawyers handling this case should delve deep into the investigation to uncover... fraud. I will not settle, as I know I will discover criminal behavior during the investigation," he stated.
However, the case may not truly delve into this topic. Celsius also attempted to argue that Tether's foreign subsidiaries ensure that British Virgin Islands law is relevant to the case, but Judge Glenn rejected this claim.
Celsius and its creditors largely believe Tether went too far in liquidating this BTC too quickly. However, some community members believe it may have simply been a mistake. In any case, Celsius was insolvent at the time.
Whatever happens in the next round of the lawsuit, $4 billion is at stake. That amount seems sufficient to attract the cryptocurrency community's attention. Whether Celsius and Tether settle out of court or not, this battle could have long-lasting consequences.
