Lawsuit Filed Against Celsius Alleging “Classic Ponzi Scheme”

Celsius Network, a once-prominent crypto lending and yield platform that bashed traditional banks, has been sued in the State of New York, blasted with allegations of operating a “classic Ponzi scheme.”

Last month, Celsius effectively shut down operations. On June 13th, Celsius tweeted:

[we] are pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community.”

Since that point in time, little new information has been shared by the beleaguered platform that found itself in the crypto vortex as the value of almost all digital assets plunged leaving Celsius unable to operate. Rumors indicate that Celsius has hired a restructuring firm as no white knights have yet to emerge to shoulder what must be a significant hole in the firm’s balance sheet.

Yesterday, KeyFi Inc. (not to be confused with Key-Fi App), and investment manager Jason Stone – CEO and founder of KeyFi, sued Celsius for its “refusal to honor its contractual obligations” that are said to amount to millions of dollars in owed money.

The plaintiff alleges that, before they were engaged, “the defendants had no unified, organized, or overarching investment strategy other than lending out the consumer deposits they received.”

The filing further alleges that Celsius used customer funds to “manipulate crypto-asset markets to their benefit,” including using these funds to inflate the value of the native token CEL.

The document slams Celsius management as having “little experience in trading and investing in crypto assets.” Stone was apparently hired to fill this gap.

The filing claims:

“In January 2021, around the time the APA [asset purchase agreement] and the Service Agreement were executed, Stone grew alarmed by Celsius’ improper business practices, ultimately concluding that its business practices were so corrupt that he and KeyFi could no longer do business with Celsius. Three discoveries by Stone formed the basis for his decision to extricate himself from his position as CEO of Celsius KeyFi:

First, Stone became aware that since at least February 2020, Celsius had engaged in a series of transactions designed to artificially inflate the price of CEL tokens. Connor Nolan, head of coin deployment at Celsius, informed Stone that Celsius had used approximately 4,500 bitcoin, with a current value of $90 million, in customer deposits to purchase CEL on the open market between February 2020 and November 2020 to artificially inflate the price.

The purpose of this scheme was both fraudulent and illegal: Celsius induced customers to be paid in CEL tokens by providing them with higher interest rates. Then by purposefully and artificially inflating the price of the CEL token, Celsius was able pay customers who had elected to receive their interest payments in the form of the CEL token even less of the crypto-asset.

In addition, by artificially increasing the price of the CEL token, [Alex] Mashinsky – who personally owned hundreds of millions of dollars’ worth in CEL token at its height – was able to enrich himself considerably.”

This scheme also made it appear that there was substantial demand for, and volume of trading in, CEL tokens…”

There is more.

Stone claims that Celsius had deceived him regarding hedging strategies exposing customers to “potentially billions of dollars in losses.”

Stone ended his relationship as CEO of Celsius KeyFi in March of 2021. The document describes Celsius as “balance sheet insolvent.”

As these are all allegations to be sorted out by the courts, you can expect Celsius to soon issue some type of response. The allegations are simply shocking. These allegations will give Celsius customers who deposited funds with the platform little hope for retrieval of their money.




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