Crypto: Celsius accuses former fund manager of stealing millions
The Celsius Network is in deep trouble.
The crypto lender is one of the biggest victims of the fall in cryptocurrency prices that caused a liquidity crisis in the industry in May, June and July.
The firm has filed for Chapter 11 bankruptcy and is restructuring its debt. But the platform, which traded cryptocurrencies and offered financial services like a traditional bank, is under pressure from retail investors who want some of their money back. These investors organize themselves on social media and their goal is to pressure the US Securities and Exchange Commission or/and the Federal Trade Commission (FTC), which is supposed to protect consumers, to open an investigation into Celsius.
The company has just given them a new item to convince the two regulators. In fact, Celsius just filed a counterclaim against money manager Jason Stone and his firm KeyFi, which Celsius had entrusted with assets to manage in 2020.
“They were also thieves”
“This action arises out of Defendants’ incompetence, deception, and conversion, and seeks to require Defendants to surrender valuable property they stole from Celsius (and ultimately from the entire Celsius community), and to pay damages and restitution for the substantial damages Defendants have sustained caused through its obvious breaches of duty”, Celsius wrote in his lawsuit, which you can read here.
“Unfortunately, Defendants Stone and KeyFi, Stone’s majority-owned corporate vehicle, proved unable to distribute Coins profitably, and appear to have lost thousands of Celsius Coins through their gross mismanagement. But the Defendants were not only incompetent, they were thieves,” claimed the lender.
Celsius continued:
“The defendants stole millions of dollars in coins from Celsius ‘wallets’ – blockchain addresses where coins and other digital assets can be stored – by transferring them to wallets that, on information and belief, are controlled by the defendants.”
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The firm also claims that Stone and his company used their coins to buy “hundreds” of non-fungible tokens (NFTs) “and then stole the NFTs they bought with Celsius coins by sending them to wallets that, according to and believe, they own or control.”
Ponzi scheme
Celsius’ complaint follows an initial complaint from Stone. In the lawsuit filed in early July, Stone called Celsius a Ponzi scheme. He claimed that Celsius used client funds to manipulate the price of the native Cel token. Stone also argued that Celsius lost a lot of money because it did not hedge against the risks presented by the practice.
Celsius, founded in 2017, built up more than $20 billion in assets in five years thanks to its promises: the firm promised 18% interest to customers who deposited their cryptocurrencies. This is a much higher rate of pay than traditional savings accounts.
To critics who believed this model was not sustainable over time, CEO and founder Alex Mashinsky insisted it was possible. But according to Stone’s complaint, the fluctuations in coin prices have completely disrupted Celsius and impaired its ability to meet its obligations to depositors.
Celsius only took deposits in bitcoin and ether, the top two cryptocurrencies by market capitalization. This means, according to Stone, that when the prices of these two coins rose faster than other tokens, the firm found itself owing more to its customers. This happened because Celsius included other coins in its client compensation model.
“Before Plaintiff came on board, Defendants had no unified, organized, or overarching investment strategy other than lending out the consumer deposits they received. Instead, they desperately searched for a potential investment that could earn them more than they owed their depositors,” Stone wrote in his complaint, which you can read here.
“Otherwise they would have to use additional deposits to pay the interest on previous deposits, a classic ‘Ponzi scheme’.
Stone also claimed that Celsius owed him hundreds of millions of dollars in compensation. He explained that his firm had raised $800 million for Celsius by investing in decentralized finance (DeFi) projects. The agreement with the crypto lender gave him 20% of the $800 million, which did not happen, according to Stone.
