Investment manager

Ex-Celsius Network Investment Manager Sues Crypto Lender For Fraud

  • The plaintiff claims Celsius started a Ponzi scheme to get rich.
  • Celsius completes manufacturer protocol loan repayment.

On Thursday, a former Celsius network employee filed a lawsuit against the crypto lender. The employee said the company uses customer deposits to change the price of its native token. Therefore, he could not properly hedge the risk, which is why the company had to suspend withdrawals.

Court file details

According to the court filing, Celsius was running a Ponzi scheme by grossly managing customer deposits to make a profit. Jason Stone’s KeyFi Inc. Sues Celsius; Stone was Celsius’ former chief investment officer. He claims Celsius owes him millions of dollars in unpaid services he provided to him.

Stone filed a lawsuit in New York State Court in Manhattan. However, the plaintiff did not specify the exact amount owed to him by Celsius. Moreover, he did not suggest any punitive measures for the crypto lender for not paying him. However, Celsius has yet to comment on this.

Stone’s allegation comes amid the crypto lender’s decision to suspend all transactions on its platform since June 12. The company, with its 1.7 million customers, blamed the general market downturn for its actions. Later, the New Jersey-based company hired advisers to help restructure its loan repayment. However, filing for bankruptcy was one of advisers’ recommendations.

Many industry experts have blamed Celsius’ outrageous returns on its yield program for its current predicament. The crypto lender has promised up to 19% returns per year for its clients willing to lend their crypto assets. However, Stone claimed Celsius failed to hedge its investments. Thus, he suffered huge losses due to the fluctuation in the value of these digital assets.

That’s when he started having trouble paying investors. The former Celsius employee also alleged that Celsius stores some of its deposits in fiat while paying its customers in digital assets. Therefore, there was up to $200 million in loopholes that the company could not fix.

Based on the court filing, Celsius and KeyFi made nearly $840 million in gross profits between August 2020 and March 2021 as a result of Stone’s efforts. But Stone claimed KeyFi was entitled to 20% of net profits. However, the filing showed that Stone had no written agreement while working with Celsius.

He further stated that he stopped working with Celsius in March 2021 when it was clear to him that Celsius’ hedging issues could completely ruin the company’s finances. More importantly, if this happened, it would ruin the reputation of his consulting firm (KeyFi). However, Stone said Celsius did not acknowledge his decision to stop working with them.

Celsius completes loan repayment

Meanwhile, the Celsius Network has fully repaid its maker protocol debt. The refund means the crypto lender can recover over $440 million in bitcoin-wrapped collateral.

Celsius has made the refunds in Bits for the past two days. Although it has completed the repayment of this loan, the crypto lender has made no official statement regarding when it will resume withdrawals on its platform.