Ex-Celsius Network Employee Takes Embattled Crypto Lender to Court
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Ex-Celsius Network Employee Takes Embattled Crypto Lender to Court

2m
2 years ago

The lawsuit accuses Celsius of leveraging deposits from customers to "manipulate cryptoasset markets" — and further putting funds at risk by failing to introduce "basic accounting controls."

Ex-Celsius Network Employee Takes Embattled Crypto Lender to Court

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A former Celsius Network employee is taking the embattled crypto lender to court.

The lawsuit accuses the company of leveraging deposits from customers to "manipulate cryptoasset markets" — and further putting funds at risk by failing to introduce "basic accounting controls."

It goes on to claim that hundreds of thousands of people have been affected by Celsius Network's actions — with withdrawals suspended for almost four weeks.

The documents also take aim at the company's business model, where deposits were used to generate income by lending crypto to others — and investing funds in the crypto markets.

It's alleged that Celsius had no "unified, organized or overarching investment strategy for these deposits" — and "they were desperately seeking a potential investment that could earn them more than they owed to depositors."

Damningly, the lawyers representing the plaintiff — KeyFi Inc. — add:

"Otherwise, they would have to use additional deposits to pay the interest owed on prior deposits, a classic 'Ponzi scheme.'"

The lawsuit goes on to claim that the suspension of withdrawals shows that a Ponzi scheme was in operation.

Jason Stone, the CEO and founder of KeyFi, explains in the lawsuit that "he managed billions of dollars in cryptoasset investment for the defendants," but adds:

"The parties' relationship began to break down when Stone discovered that not only did Defendants lack basic security controls to protect the billions of dollars in customers' funds they held, but that they were actively using customer funds to manipulate cryptoasset markets to their benefit. The most egregious example of this was Plaintiff's discovery that Celsius used customer Bitcoin deposits to inflate its own cryptoasset called the Celsius token."

Stone claims that Celsius "believed that the billions of dollars of customer deposits it manages are its property" — and pointed to the company's Terms of Service, which states:

"Celsius does not hold any Digital Assets on your behalf… [they] instead are owned, held and/or controlled by Celsius."

Although Stone attempted to terminate the business relationship in March 2021, he claims that Celsius "repeatedly refused" to acknowledge the resignation — and refused to pay him a share of the profits he was entitled to.

On Twitter, Stone claimed that he has been attempting to "quietly settle this dispute with Celsius for over a year" — not least because KeyFi is owed a "significant sum of money." However, he added:

"Given the public speculation about the company's solvency, and my observation of Celsius' loose relationship with the truth, I feel it is only prudent to finally set the record straight. I have brought legal action against Celsius to settle this issue once and for all."

Celsius is yet to comment on the lawsuit, which calls for a trial by jury and an unspecified amount of damages and punitive damages.

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