Celsius accused of fraud in lawsuit by former money manager

Quick Take

  • Jason Stone’s KeyFi Inc claims that Celsius behaved fraudulently and owes money to the firm from a profit-sharing agreement.
  • Stone referred to Celsius as a Ponzi scheme in a complaint filed on Thursday.
  • Celsius has faced continued public scrutiny after halting withdrawals on its platform in June.

A former Celsius contractor has filed a lawsuit against the troubled crypto lender, accusing the firm of mismanagement and fraud—claiming it is owed money based on hundreds of millions in profits generated.

According to a filing with the New York state court on Thursday KeyFi Inc., a company founded by Jason Stone, has accused Celsius of fraud as well as owing KeyFi millions of dollars from a profit sharing agreement. Stone was also an employee of Celsius Network during 2021.

Here's a passage from the suit:

"From August 2020 through March 2021, Plaintiff generated hundreds of millions of dollars in profits for the parties’ mutual benefit. Those profits came in the form of transaction fees, rewards for staking tokens, and other appreciating assets. As in any investment relationship, Plaintiff and Stone were responsible for generating a profit on the funds provided to them, while Celsius was responsible for ensuring that its investment strategies would not prevent it from repaying its depositors in kind."

Twitter user 0xb1—which sources close to The Block confirmed is Stone's anonymous account—took to the social media site to say, “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.”

Stone declined to comment further on the record. 

KeyFi Inc worked with Celsius between August 2020 and April 2021 staking and deploying DeFi strategies for the lending platform, according to Stone’s post. Throughout this period KeyFi "generated hundreds of millions of dollars in profits for the parties’ mutual benefit" according to Thursday's filing.

The filing goes on to say that Celsius had assured Stone its risk management team was monitoring its activity and their trading teams were “adequately hedging any potential impermanent loss from our activities in liquidity pools.”

According to the post and per the filing Celsius had lied to KeyFi about this, with Stone’s company alleging Celsius's portfolio had “naked exposure to the market.”

The filing goes on to claim that Celsius suffered severe losses during the 2021 crypto bull run, beginning in January 2021, as it had recklessly and fraudulently failed to hedge its investments. 

It then goes on to add that the lender began offering high interest rates as it faced a liquidity crisis in order to “lure new depositors” becoming a Ponzi scheme in the process. 

Celsius has come under intense scrutiny over the past month after halting withdrawals on June 12, a month to the day after the Terra blockchain began to collapse.

Following the collapse of the Terra blockchain and against a choppy macroeconomic backdrop that has affected broader financial markets cryptocurrencies have plunged in price. The troubled market has led to liquidity issues for several crypto companies, including other lenders such as Voyager Digital and BlockFi.

Celsius did not immediately respond to request for comment from The Block. 

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