Celsius Network has sued Tether, seeking to recover more than $2 billion in Bitcoin that it claims was lost through “fraudulent” transfers and other breaches during its bankruptcy.

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Celsius Network Ltd. has filed a lawsuit against Tether and its related companies, accusing them of making “fraudulent” and “preferential” transfers of Bitcoin (BTC) worth over $2 billion. The lawsuit, submitted in federal bankruptcy court, aims to recover the Bitcoin that Celsius lost due to Tether’s actions during a crucial time before the company’s bankruptcy.

Celsius Network Sues Tether Over Alleged Fraudulent Transfers

Celsius Network, a major crypto lender, entered into a loan agreement with Tether Ltd. in 2020. This deal allowed Celsius to borrow stablecoins, specifically USDT and Euro Tether (EURT), at low-interest rates. To secure these loans, Celsius posted significant collateral, including Bitcoin.

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At the height of their agreement, Celsius had borrowed nearly $2 billion in USDT, backed by tens of thousands of BTC. The lawsuit now focuses on the actions taken by Tether during the ninety-day period leading up to Celsius’s bankruptcy filing on July 13, 2022.

According to the complaint, Tether demanded and received substantial new collateral from Celsius, amounting to 15,658.21 Bitcoin. Additionally, they secured new borrowings with an extra 2,228.01 BTC. These actions, referred to as “Preferential Top-Up Transfers” and “Preferential Cross-Collateralization Transfers,” allegedly improved Tether’s position at the expense of other creditors, which Celsius argues was unfair.

Celsius Network Alleges Tether’s Breach in Collateral Demand

On June 13, 2022, Tether, a major stablecoin issuer, made a final demand for additional collateral from Celsius Network. According to their agreement, Celsius had 10 hours to respond. However, Tether immediately applied the entirety of Celsius’s collateral—39,542.42 Bitcoin—without honoring the agreed-upon waiting period.

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This action, termed the “Preferential Application Transfer,” allegedly allowed Tether to secure its position by covering its exposure. Celsius Network claims this move “robbed” them of their remaining Bitcoin at a low market value.

The lawsuit argues that Tether’s breach of the 10-hour waiting period led to what Celsius describes as a “fire sale” of its Bitcoin assets. All 39,542.42 BTC were applied against Celsius’s outstanding debt, with Tether valuing the Bitcoin at $816.82 million—significantly lower than its current worth of over $2 billion.

This action reportedly caused substantial financial damage to Celsius Network. The court filing from August 9 states that Tether sold the Bitcoin at an average price of $20,656.88 per coin, which was below the market closing price of $22,487.39 on that date.

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Celsius Network’s lawsuit against Tether claims that Tether’s liquidation of Celsius’s Bitcoin was commercially unreasonable and violated established market practices. The lawsuit argues that Tether sold a large block of Bitcoin too quickly, at prices lower than the actual market rates, instead of spreading the sale over time to minimize price impact and secure better pricing.

Celsius Network alleges that this premature liquidation deprived the company of the opportunity to survive the market crash and prevented the automatic stay of bankruptcy from intervening. As a result, the lawsuit seeks to “recover” the Bitcoin lost through these alleged preferential and fraudulent transfers. Celsius is also claiming damages for breach of contract and is demanding that Tether return the value of the Bitcoin or its equivalent amount in damages.

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Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

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