Crypto-lender Celsius sued for being a Ponzi scheme
A former investment manager at Celsius Network sued the cryptocurrency lender on Thursday, saying it used customer deposits to rig the price of its own cryptocurrency and failed to properly hedge the risk, which caused it to freeze the customer’s assets.
The complaint alleges that Celsius operated a Ponzi scheme to serve itself through “gross mismanagement of customer deposits” and defrauded plaintiff KeyFi Inc, run by former boss Jason Stone, of offering millions of dollars worth of services and refusing to pay for them. .
Celsius had no immediate comment on the lawsuit, which seeks unspecified compensation and penalty compensation and was filed in New York State Court in Manhattan.
Stone’s charges follow Celsius’ decision on June 12 to freeze withdrawals and transfers for its 1.7 million customers due to “extreme” market conditions.
The Hoboken, New Jersey-based company later hired advisers for a possible debt restructuring, which could allegedly include a bankruptcy filing.
Celsius was co-founded in 2017 by Israeli Daniel Leon, President and COO of Celsius, CEO Alex Mashinsky and CTO Nuke Goldstein. The company, which raised $ 750 million in financing late last year and reached a value of $ 3 billion, offered interest-bearing products to customers who deposit their cryptocurrencies with the company, and lend cryptocurrencies to make money. As of May 17, the company had processed loans worth $ 8.2 billion and had $ 11.8 billion in assets, according to the website.
Celsius promised retail customers oversized returns, sometimes as much as 19% annually. But Stone said Celsius struggled to pay investors because it failed to secure investments, resulting in “serious” losses as the values of various currencies fluctuated.
He also accused Celsius of logging some deposits into his US dollar-denominated books, even though they paid customers with bitcoin or other tokens, causing a $ 100 to $ 200 million gap that it “could not fully explain or resolve. . “
According to Thursday’s complaint, Stone, largely without a written agreement, generated $ 838 million in profits for Celsius and KeyFi before costs and overhead from August 2020 to March 2021, with KeyFi entitled to 20% of net profit.
Stone says he left the relationship in March 2021 after it became clear that the security issues “could be financially devastating” for Celsius and damage KeyFi’s reputation, but that Celsius has refused to acknowledge his resignation.
