Celsius Files Lawsuit Against Tether to Recover $2 Billion in Bitcoin Lost in Alleged Fraudulent Transactions

Celsius Network Ltd. has taken legal action against Tether and its associated entities, alleging that the issuance of USDT conducted “fraudulent” and “preferential” transfers of Bitcoin (BTC) totaling more than $3.5 billion today. The complaint, filed in federal bankruptcy court, aims to recover the lost Bitcoin of the collapsed estate due to actions taken by the USDT issuer leading up to the company’s bankruptcy. Despite the legal proceedings, Tether CEO Paolo Ardoino has denied the fraud accusations and indicated a forthcoming legal battle, describing it as a “shake down.”

Celsius Network, a well-known crypto lending platform, engaged in a loan agreement with Tether Ltd. in 2020. This agreement permitted the lender to borrow stablecoins, specifically USDT and Euro Tether (EURT), at favorable interest rates. In exchange, the crypto lender provided substantial collateral, including Bitcoin, to secure these loans.

At its peak, the company had borrowed nearly $2 billion in USDT, supported by tens of thousands of BTC. The lawsuit focuses on the actions taken by the USDT issuer during the ninety-day period preceding the crypto lender’s bankruptcy filing on July 13, 2022.

The complaint alleges that the USDT issuer requested and received significant amounts of new collateral from the crypto lender, totaling 15,658.21 Bitcoin, and additionally secured new borrowings with an extra 2,228.01 BTC. These actions, labeled as “Preferential Top-Up Transfers” and “Preferential Cross-Collateralization Transfers,” are claimed to have unfairly benefited the stablecoin company at the expense of other creditors.

On June 13, 2022, the stablecoin company issued a final demand for additional collateral. The crypto lender was supposed to respond within 10 hours as per the agreement. However, the stablecoin issuer proceeded to apply all of Celsius Network’s collateral, i.e., 39,542.42 BTC, immediately without adhering to the contractually stipulated time frame.

This move, known as the “Preferential Application Transfer,” allegedly enabled Tether to cover its exposure. Nevertheless, the bankrupt crypto lender was left with its remaining BTC at a reduced market value, causing significant financial harm. The lawsuit asserts that the breach of the contract’s waiting period led to a “fire sale” of the estate’s Bitcoin, with all 39,542.42 BTC applied against Celsius Network’s outstanding debt.

The legal action seeks to recover the preferential and fraudulent transfers of Bitcoin, along with damages for the alleged contract breach. Consequently, the bankrupt estate demands that the court compel Tether to reimburse the value of the BTC or its equivalent in damages.

Tether and its CEO Paulo Ardoino responded to the lawsuit, affirming their commitment to defending against Celsius Network’s claims. Ardoino dismissed the allegations made by the crypto lender as “baseless” and expressed readiness to address the matter in court. Meanwhile, Celsius Network remains steadfast in its pursuit of recovering 57,398.64 BTC valued at over $3.5 billion from the stablecoin issuer.