Lawsuit Accuses Celsius Network of Fraud

Former investment manager at Celsius Network sued the crypto lender for “gross mismanagement of customer deposits.”

On July 7th, Reuters reported that a former investment manager at Celsius Network sued the crypto lender, accusing it of using customer deposits to manipulate the price of its own crypto token. Failure to properly hedge the risks resulted in frozen customer assets.

Accused of Market Manipulation and Fraud

Jason Stone, the CEO, and founder of KeyFi, who was employed by Celsius, filed a lawsuit against the network on Thursday. According to the lawsuit, Celsius is responsible for running a Ponzi scheme to benefit itself through “gross mismanagement of customer deposits.”

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The complaint further disclosed that Celsius defrauded KeyFi Inc. into offering services worth millions of dollars and refusing to pay for them. According to Stone, Celsius struggled to pay investors high returns as promised, mainly because the company failed to hedge investments. This resulted in substantial value fluctuations among the coins and significant losses.

Stone also accused Celsius of logging deposits onto its cash accounts in U.S. dollar currency even if the firm paid customers with Bitcoin or other tokens. These actions caused $100 to $200 million holes that Celsius could not fully explain or account for.

According to Thursday’s complaint, Stone, even though it mainly worked without a written agreement, generated $838 million of profit for Celsius and KeyFi before costs from August 2020 to March 2021.

Stone stated that he ended the working relationship with the company in March 2021 after seeing the hedging issues that “could be financially ruinous” for Celsius and damage KeyFi’s reputation. However, Celsius has refused to recognize his resignation.

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Celsius had no immediate comment on the lawsuit, which sought unspecified compensatory and punitive damages and was filed in New York state court in Manhattan.

Celsius Liquidity Crisis

The lawsuit comes after Celsius Network on June 12 decided to freeze withdrawals and transfers for its 1.7 million customers because of “extreme” market conditions. The measures taken by Celsius plunged the price of Bitcoin into a 14% deficit on June 13, deepening the market dip.

After the crypto market crash, market analysts and companies saw a severe domino effect. ​​Crypto lender BlockFi cut 20% of its staff because the company has been hurt by the “dramatic shift in macroeconomic conditions,” which have had a “negative impact” on growth, as announced by CEO Zac Prince. Yet another crypto lender Voyager Digital Ltd also filed for bankruptcy this week.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

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Paulina Okunyte

Paulina is a writer, reporter, and digital craftswoman. Her educational background extends from anthropology to IT & multimedia. She has experience working with tech startups, as well as mastering the craft of journalism. At DailyCoin, Paulina focuses on the world of metaverses, NFT marketplaces, NFT art, and blockchains backing NFT technology.