Jason Stone, a former investment manager under KeyFi and employee of the crypto firm, has lodged a complaint against embattled cryptocurrency lending platform Celsius Network. Stone's lawsuit, which is based out of the New York state supreme court, posits that Celsius was embroiled in a variety of fraudulent activities, most prominent among them being allegedly propping up its own digital coin, CEL.
Stone details several key issues surrounding his company's involvement with Celsius as well as his troubled employment there, calling their prior business agreement a mere "handshake deal," which saw KeyFi "manage billions of dollars in customer crypto-deposits in return for a share of the profits generated from those crypto-deposits." No official or legal documentation was made between either party.
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.
— 0xb1 (@0x_b1) July 7, 2022
Stone founded KeyFi in 2020 and initiated operations with Celsius in August of that same year. He would later depart Celsius Network in March of 2021 when many of these issues came to his attention, citing in the lawsuit that Celsius "could not fully explain or resolve" a $100 million to $200 million hole in its balance sheet. Celsius Network's in-house Ethereum blockchain wallet, called 0xb1, was built and utilized as Stone's deployment measure, wherein "hundreds of millions of dollars in crypto-assets" would be sent for Stone's team to use.
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According to Stone, however, that 0xb1 Ethereum wallet was utilized as Celsius CEO Alex Mashinsky's private account. Stone alleges in the lawsuit that Mashinsky had previously transferred several highly valuable NFTs from the 0xb1 wallet to his own wife's account. As Stone details, the 0xb1 wallet remains in Mashinsky's control and is still being leveraged "for his own personal benefit."
A major crash in cryptocurrency prices, thus far likened to the dreaded "crypto winter," has caused widespread fears and harm within the digital asset industry. Celsius took much of the brunt effects of these concerns, pausing withdrawals last month due to "extreme market conditions." At the start of July, Celsius took several actions to stave off its inevitable bankruptcy, such as laying off 150 employees and paying back Aave $50 million for a healthier loan ratio.
The company was in such a rut that many fears were bred that Mashinsky would potentially leave the states, with Digital Assets Data's co-founder, Mike Alfred, claiming in a now-deleted Tweet that the CEO attempted to leave the country in late June. Celsius' extremely high returns, often hitting an annual 19%, was a key factor in many others beyond Stone, likening the firm to a Ponzi scheme, despite failing to hedge investments, according to Stone.
"But these promises were lies," reads the lawsuit. "Despite its repeated assurances, Celsius failed to implement basic risk management strategies to protect against the risks of price fluctuation that were inherent in many of the deployed investment strategies."
Stone also alleges that Celsius would offer higher interest rates to customers that received payments in the firm's crypto. According to the lawsuit, however, several transactions under Celsius were made to artificially bump CEL's price, thereby allowing Celsius to "pay customers who had elected to receive their interest payments in the form of the CEL token even less of the crypto-asset."
