Celsius Network Sues Tether, Alleges 'Fraudulent' Transfers of Bitcoin (BTC) Worth $2B

Celsius Network, a prominent crypto lender, entered into a loan agreement with Tether Ltd. in 2020. This arrangement allowed the lender to borrow stablecoins

Celsius Network has filed a lawsuit against Tether and its affiliated entities, alleging that the USDT issuer conducted “fraudulent” and “preferential” transfers of Bitcoin (BTC) amounting to over $2 billion today.

Celsius Network, a prominent crypto lender, entered into a loan agreement with Tether Ltd. in 2020. This arrangement allowed the lender to borrow stablecoins, specifically 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, backed by tens of thousands of BTC. The lawsuit focuses on actions taken by the USDT issuer 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 the stablecoin company’s position at the expense of other creditors.

Preferential Application Transfer & Breach of Contract

On June 13, 2022, the stablecoin firm issued a final demand for additional collateral. The crypto lender, in accordance with their agreement, had 10 hours to respond. However, stablecoin issuer proceeded to apply the entirety of Celsius Network’s collateral, i.e., 39,542.42 BTC immediately, without granting the contractually stipulated time.

Celsius alleges that this action constituted a “Preferential Application Transfer” and a breach of their loan agreement with Tether. The complaint also highlights that the stablecoin company failed to return any of the crypto lender’s remaining collateral, despite repaying a portion of their outstanding loan.

Celsius Network’s bankruptcy estate is now seeking to recover the lost Bitcoin from the USDT issuer. The lawsuit aims to have these transfers declared fraudulent and preferential, rendering them null and void. Celsius also seeks an order directing Tether to return the recovered BTC to the estate.

Celsius Bankruptcy: A Key Backdrop

Celsius Network filed for Chapter 11 bankruptcy in July 2022, following a liquidity crisis triggered by the broader market downturn and unsustainable lending practices. The crypto lender’s collapse left a hole of nearly $4.7 billion in customer liabilities, according to court filings.

As part of its bankruptcy proceedings, Celsius has been engaged in efforts to recoup lost assets and maximize recoveries for its creditors. This includes pursuing legal actions against parties like Tether, whose actions during the lead-up to the bankruptcy are now being contested in court.

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