Celsius Network Sues Tether for $2B in Alleged Bitcoin Fraud

Bankrupt crypto lender Celsius Network has filed a lawsuit against Tether, the company that issues the USDT stablecoin. The lawsuit claims that Tether mismanaged over $2 billion worth of bitcoin (BTC), worsening Celsius’ financial troubles and contributing to its bankruptcy.

Celsius accused Tether of breaking their agreement by improperly using Bitcoin held as collateral to pay off Celsius’s outstanding loan. This allegedly happened in the 90 days before Celsius filed for bankruptcy on July 13, 2022.

The Collateral Agreement

In February 2020, the two firms signed an agreement that allowed Celsius to borrow USDT by using Bitcoin as collateral. They updated the agreement in January 2022, adding a rule that required Tether to notify Celsius if its collateral dropped below a certain level, giving the borrower ten hours to respond.

According to the lawsuit, Celsius borrowed 512,330,000 USDT from Tether under this updated agreement, securing the loan with 16,505.17 BTC as collateral. When Bitcoin’s price fell in April 2022, Tether allegedly demanded more collateral to protect its position. Celsius complied by adding 16,737.27 BTC, but the firm claims that the collateral wasn’t kept in separate accounts.

Breach of the Collateral Agreement

On June 12, 2022, Tether made new demands for more collateral. Celsius says Tether sent the first demand late at night, and Celsius responded the next day by transferring 3,041.73 BTC. However, the stablecoin issuer made a second demand soon after, insisting on immediate payment, which Celsius argued violated the ten-hour notice period in their agreement.

Celsius also claimed that Tether quickly sold all 39,542.42 BTC of its collateral, worth $816,822,948, at a steep discount in what is described as a “fire sale.” The lawsuit argues that this sale was a fraudulent transfer under bankruptcy law and asks the court to recover the Bitcoin or award damages for Tether’s actions.