Two Bermuda companies linked to BitMex, the cryptocurrency exchange, are among the defendants in a lawsuit by Celsius Network, a failed lender that alleges that wrongful liquidations and market manipulation in March 2020 cost it and an investment fund 6,360 bitcoin, now worth about $495 million.

The complaint was filed on September 12 in the US Bankruptcy Court for the Southern District of New York by Celsius Network entities, through Blockchain Recovery Investment Consortium, the recovery manager and litigation administrator appointed in Celsius’s bankruptcy.

The defendants are BitMex entities in Seychelles, Delaware, Hong Kong and Bermuda, including 100x Holdings Ltd and HDR Global Services (Bermuda) Ltd.

According to the complaint, 100x Holdings is a Bermudian-incorporated holding company for the BitMex business, while HDR Global Services (Bermuda) employed people who performed duties for the exchange.

Celsius cited a 2021 finding by the United States Financial Crimes Enforcement Network, or FinCen, that the five companies named in the lawsuit operated as an “integrated, common enterprise”.

The lawsuit is a result of the market turmoil of March 12 and 13, 2020, when bitcoin’s price fell by about 50 per cent in a day.

Celsius and an investment fund, JST, held positions that depended on bitcoin maintaining or increasing its value. When prices fell, BitMex’s automated system took control of and sold positions that had crossed agreed loss limits.

Celsius alleges that BitMex’s system did not merely respond to the falling market, but actually intensified it by selling at prices that drove bitcoin lower and triggered further automatic sales.

The complaint said that the process created a “self-reinforcing liquidation cascade”, in which falling prices led to forced sales, the sales pushed prices down further and those lower prices caused more positions to be closed.

Celsius alleged that BitMex “designed and operated a platform that turned market crises into a profit centre”.

The company claims that BitMex benefited from fees charged on liquidated positions and through a bitcoin-denominated insurance fund that received money when a position was closed for more than the amount needed to cover its losses.

The complaint alleged that BitMex controlled both “the system that determined when its customers would be liquidated” and a fund that grew from successful liquidations.

Celsius claims that it lost 1,325.8385 bitcoin in one liquidation on March 12, 2020. It also asserts claims assigned to it by JST, which it says lost 5,034.3281 bitcoin in a second liquidation the following day.

Together, the claims amount to 6,360.1666 bitcoin.

Celsius is seeking the return of that bitcoin, or its current value, as well as other damages, the repayment of any profits linked to the alleged conduct, legal costs and potentially punitive or trebled damages. It has requested a jury trial.

The allegations have not been tested in court and Bitmex has not yet filed a response.

BitMex was founded in 2014 by Arthur Hayes, Benjamin Delo and Samuel Reed. The founders and the exchange later pleaded guilty in US cases relating to failures in the company’s anti-money-laundering controls. They received presidential pardons last year.

The complaint was filed 11 days before BitMex is scheduled to cease operations on September 23.