Bankrupt lending platform Celsius has filed a lawsuit against Tether, demanding 39,542 BTC.
according to LawsuitThe amount was collateral for a loan from the issuer of the Tether (USDT) stablecoin. Tether requested more collateral after the price of Bitcoin (BTC) fell in early 2022.
Celsius agreed to Tether’s request, but the collateral was once again threatened. The lawsuit says that while the lending platform was raising funds within the contractual period, the USDT issuer liquidated the entire collateral within hours.
According to the lawsuit, “amidst the chaos,” on June 13, 2022, then-Celsius CEO Alex Mashinsky allowed Tether to liquidate the collateral in an orderly manner. However, the platform notes that the lender never received written consent:
Of course, Tether’s efforts are now subject to federal bankruptcy law. Therefore, these preferential and fraudulent transfers of bitcoin should be avoided, and the bitcoin or its value should be recovered for the benefit of Celsius’s estate.
Instead of providing additional collateral, Celsius instructed Tether to liquidate its Bitcoin collateral to close out a position worth approximately $815 million, the company said.
In addition to the 39,542 BTC, Celsius demanded 15,658 BTC and 2,228 BTC, which it claimed to have provided as additional collateral, for a total of 57,428 BTC.
Tether reply
Commenting on the situation with Celsius, Tether CEO Paolo Ardoino noted that the entire process, from over-collateralization to margin calls and liquidations, was executed properly, as instructed by Celsius management.
According to him, in 2022, Tether offered USDT to some of its clients, including Celsius. The agreements that Tether has with its clients are simple: Tether offers USDT to selected clients who provide additional collateral in the form of Bitcoin.
This complaint demonstrates a lack of basic understanding of the concepts of market slippage, block liquidation and risk management. Very weak arguments were made. The liquidation was also directed by the Celsius management team and agreed upon every step along the way.
He also mentioned that Tether’s top priority remains the safety of USDT users. According to Ardoino, the company has a capitalization of $12 billion, so stablecoin holders will not be affected even in the worst-case scenario.
We at Tether have proven our resilience countless times over the past few years. We are never intimidated by bullying. We are very confident in our ability to prove our actions in court.
What happened to the loan?
In 2020, Celsius struck an agreement with Tether to borrow USDT and EURT stablecoins at low interest rates. At its peak, Celsius had borrowed over $2 billion from Tether, backed by a large amount of Bitcoin as collateral.
Amid the Bitcoin crash in mid-2022, the collateral provided by the crypto lender was at risk of being liquidated. According to the agreement, the company was required to provide additional collateral.
Celsius alleges that Tether acted in bad faith by hastily liquidating a large amount of cryptocurrency and violating the terms of the agreement.
This ultimately led to financial difficulties and bankruptcy for the company, the document says. The main goal of Celsius’ lawsuit is to return Bitcoin assets, which the crypto lender claims were sold at below market value and with numerous violations.
How did Celsius go bankrupt?
Celsius froze withdrawals of clients’ assets in June 2022. A month later, the company went bankrupt. According to many analysts, the crypto brokerage was experiencing liquidity problems. However, the company stated the opposite – the move was supposed to help “stabilize liquidity.”
In late January 2023, a forensic expert found that Celsius Network had faced a $1 billion stablecoin shortage in May 2021. At the same time, the company did not notify customers or regulators of this until the bankruptcy itself, but continued to advertise its services.
Celsius Network’s creditors unveiled a reorganization plan for the company, which was approved by most account holders. In November 2023, the court approved Celsius’ restructuring plan. A few months later, the crypto lender announced that it had completed bankruptcy proceedings and planned to pay $3 billion to creditors.
Celsius CEO Blames Prosecutors for Collapse
In July 2023, Mashinsky was arrested after the SEC filed a lawsuit against the company. He is charged with fraud and market manipulation, and the company’s token is being held as collateral. He was soon released on $40 million bail. Prosecutors said it would take six to eight weeks to gather evidence, including videos Mashinsky posted online in which he allegedly misled investors.
Mashinsky has pleaded not guilty, and his lawyers have called the allegations “baseless.” Mashinsky himself has previously blamed the New York Attorney General’s Office for his business collapse.
In September 2023, Mashinsky’s bank accounts and real estate were frozen by court order as part of a criminal case against the company and its senior management.
What’s next?
The lawsuit doesn’t guarantee that Celsius will get what it wants. For now, the platform is likely to face another lawsuit after a two-year bankruptcy battle. Either way, the lawsuit further highlights how Tether has avoided the financial difficulties that other crypto companies have faced during the 2022 bear market.