rewrite this title Judge Says $4 Billion Celsius Lawsuit Against Tether Can Proceed – Decrypt

Bankrupt crypto lender Celsius can proceed with its $4 billion case against stablecoin giant Tether, a U.S. bankruptcy judge in the Southern District of New York has ruled.

However, Martin Glenn, chief United States bankruptcy judge, did grant some elements of Tether’s motion to dismiss. These include Celsius’s allegations that hinge on one of Tether’s subsidiaries being based in the British Virgin Islands and therefore subject to the duty of “good faith and fair dealing” as defined under the island’s law.

Tether had previously dubbed the case “baseless” and a “shakedown” when it was filed in August last year.

Celsius, which at one point had more than $25 billion in assets under management, imploded during the crypto winter of June 2022, losing billions of investors’ funds, severely impacting many amateur and high-street investors. The resulting legal action eventually led to criminal fraud charges and a 12-year prison sentence for former CEO Alex Mashinsky, who has forfeited any right to benefit from Celsius’s assets in future.

In its 2024 lawsuit, Celsius alleges Tether liquidated 39,500 Bitcoin—now worth approximately $4 billion at today’s prices. The BTC was being held as loan collateral. Celsius says Tether liquidated the collateral in 2022 to recoup its $812 million claim against the firm amid rapidly falling crypto values and did not honor its contractual terms.

As per the court filing, Celsius claims that Tether failed to honor the 10-hour waiting period contained in the contract to liquidate the assets after they fell below a certain threshold.

The judge found that Tether’s knowledge of Celsius’s insolvency at the time they chose to sell the Bitcoin did not provide an “independent basis” for liquidation, nor did verbal approval from Celsius’s CEO Alex Mashinsky.

Peter Vas, a Partner at law firm Spencer West LLP, told Decrypt that the ruling could be highly impactful for future cross-border cryptocurrency disputes.



Vas believes that the most recent ruling—that the case can proceed—reinforces that U.S. Courts may assert jurisdiction “if the alleged misconduct involves U.S.-based communications, personnel or financial accounts, irrespective of the jurisdiction of incorporation of the alleged wrongdoer.”

“This development will clearly be of concern to offshore cryptocurrency firms incorporated in the British Virgin Islands and elsewhere which must carefully navigate jurisdictional exposure and ensure rigorous governance to avoid costly litigation in the USA.”

Vas adds that the ruling is a “reminder that contractual obligations must be clearly drafted to reflect the commercial objectives of the parties.”

Tether did not immediately reply to a request for comment from Decrypt.

The future of Celsius 

After years of litigation, the bankrupt lender has made significant inroads in repairing some of the damage it did to former clients since its repayment plan kicked off in January 2024.

As of August 2024, the firm has distributed $2.5 billion to 251,000 creditors across several payout rounds. This covers 93% of all claims, and almost two-thirds of eligible creditors. However, approximately 121,000 creditors have not yet successfully claimed their portion of the distribution, though these are former users who are generally owed smaller amounts.

Edited by Stacy Elliott.