Celsius: New lawsuit from ex-employee accuses digital assets lender of fraud

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Jason Stone, chief executive officer (CEO) of staking software and strategies firm KeyFi, has filed a lawsuit accusing digital assets lender Celsius of market manipulation and fraud.

The suit, which was filed in the New York State Supreme Court, describes Celsius as a Ponzi scheme and states that the lender refused to honor its contractual obligation to pay KeyFi millions of dollars it is owed according to a profit-sharing agreement.

KeyFi’s assets and management team were acquired by Celsius in August 2020. The company managed millions of dollars of Celsius’ customer deposits, generating millions in profits for the lender.

However, KeyFi decided to end the arrangement in early 2021 after discovering improprieties in Celsius’ risk management. Stone says in his statement that he discovered Celsius’ team lied about having entered necessary hedging transactions. These transactions would have ensured that price fluctuations in the digital assets KeyFi was managing did not affect the company’s ability to repay depositors.

“They [Celsius] assured me that as part of this monitoring, their trading teams were adequately hedging any potential impermanent loss from our activities in liquidity pools… Celsius failed to implement basic risk management strategies to protect against the risks of price fluctuation that were inherent in many of the deployed investment strategies,” the filing reads.

Stone added that the events around Celsius of recent have proven that his concerns were valid. At the time of KeyFi reneging from its arrangement with Celsius, it was managing close to $2 billion of assets for the lender.

“The unfortunate events that have publicly unfolded in recent weeks show that Plaintiff was right – Celsius grossly mismanaged its customer funds, failed to perform basic internal auditing to account for its obligations, and manipulated crypto-assets to the benefit of itself and its principals,” the filing added.

Stone’s demands in the lawsuit include a trial by jury, award of damages, recuperation of money owed, and pre-and-post-judgment interest.

Celsius’ reputation has taken a hit recently

The lawsuit is only the latest addition to the crisis that Celsius is caught up in. On June 12, Celsius announced that it was freezing all withdrawals and swaps from its platform for an indefinite period citing “extreme market conditions.”

The lender’s reassurance that freezing withdrawals and swaps is for the best interest of users has been met with wide skepticism. Regulators from the U.S. states of Kentucky, Texas, Washington, Alabama, and New Jersey have opened probes into the company.

Meanwhile, investigations carried out by the Financial Times show that Celsius indeed made risky bets with depositors’ funds to fulfill its promise of high APYs—as high as 18% in some cases.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.