Celsius faces a bomb of allegations from its Ex-employee in a lawsuit

In a lawsuit filed in New York, troubled crypto lending platform Celsius has been accused of fraud, improper management of customers’ funds, and breach of contract by staking software provider KeyFi.

KeyFi founder Jason Stone said that Celsius ran a Ponzi scheme and utilized user funds to control the price of its crypto token CEL. The lawsuit asserts that the platform was a Ponzi since Celsius was unable to meet its withdrawal obligations.

The filing stated “as customers sought to withdraw their ether deposits, Celsius was forced to buy ether in the open market at historically high prices, suffering heavy losses. Faced with a liquidity crisis, Celsius began to offer double-digit interest rates in order to lure new depositors, whose funds were used to repay earlier depositors and creditors.”

Hi all! I’m Jason Stone, and from August 2020 until April 2021, I led the group of talented individuals who managed the 0xb1 address.

— 0xb1 (@0x_b1) July 7, 2022

Stone claimed that KeyFi managed nearly $2 billion in assets before the two parties parted ways, with the AUM value rising to over $800 million by April 2021. It’s worth noting that the court filing stated that KeyFi and Celsius collaborated “without any formal written agreement.”

Celsius allegedly broke its commitment

Celsius assured KeyFi that the risk management team overseeing the latter’s investing activity was “hedging any potential impermanent loss from [its] activities in liquidity pools” while managing the customers’ cash. But according to KeyFi head, the team found out that Celsius broke their commitment later, in February 2021. Stone stated:

“We discovered Celsius had lied to us. They had not been hedging our activities, nor had they been hedging the fluctuations in crypto asset prices. The entire company’s portfolio had naked exposure to the market.”

Despite the fact that the troubled crypto lender has not released any formal statements regarding the lawsuit, the most recent development comes almost a month after the lending company stopped accepting withdrawals.

Later, Celsius employed restructuring lawyers to assist in resolving its financial crisis. TheCoinRise recently reported that Maker released 21,962 wrapped bitcoins (wBTC) worth $448 million after the lending platform paid off its obligation to it.