The claimant, Jason Stone, is the CEO of KeyFi, an investment firm operating in the crypto world. In the lawsuit, he claims that his company managed, between the months of August 2020 and March 2021, the equivalent of billions of dollars
on behalf of Celsius. To do this, KeyFi integrated the operations of Celsius and formed a subsidiary named Celsius KeyFi.
Celsius acts as a sort of bank in the crypto world. Its clients can deposit cryptoassets there and get a return on their deposits. They can also borrow cryptoassets or cash by placing cryptoassets with Celsius as collateral.
Even if such large amounts were involved, Mr. Stone alleges that no formal agreement had been reached between Celsius and KeyFi, the two companies having instead agreed on a handshake
.
In the lawsuit, Mr. Stone says he quickly found disorganization, mismanagement and fraud
at Celsius and judged the company’s business practices so corrupt
that he left it in March 2021. He is suing the company since he considers that Celsius did not pay him the profits that were due to him.
He claims to have discovered that Celsius did not have basic security controls in place to protect the billions of dollars in funds entrusted to it by its clients
.
Mr. Stone adds that, in his view, Celsius’ practices have caused harm to the hundreds of thousands of people who use [la plateforme]
and led to the company’s current situation.
Recall that following a collapse in the crypto market, Celsius announced on June 12 that it had suspended withdrawals on its platform. Since then, the company has been silent and its customers no longer have access to the cryptoassets they have entrusted to it.
An alleged Ponzi scheme
Jason Stone says Celsius’ business model is to use deposits from its new clients to pay returns to its custodians. He alleges that Celsius began offering returns of more than 10% on deposits in February 2021, hoping to attract new customers to cope with a liquidity crisis
.
As a result, while Celsius continued to portray itself as a transparent and well-capitalized company, it had in truth become a fraudulent Ponzi scheme.
can we read in the lawsuit.
A Ponzi scheme involves finding new investors and using their funds to compensate investors who have come on board earlier. This type of pyramid scheme is considered fraudulent.
Jason Stone also alleges that Celsius used customer deposits to manipulate the value of CEL, a cryptocurrency created by Celsius. The company encourages its customers to use CEL by offering more attractive interest rates if they accept that Celsius pays them their profits in CEL.
According to Mr. Stone’s estimate, Celsius and its managers have little experience in crypto-asset trading and investing, despite the colossal sums entrusted to it by its clients
. Shortly before pausing withdrawals, Celsius claimed to manage some US$12 billion in cryptoassets from its clients.
Mr Stone says Celsius’ lack of experience meant the company hadM$US and 200M$US in its balance sheet”,”text”:”a hole of between US$100M and US$200M in its balance sheet”}}”>a hole of between US$100 million and US$200 million in its balance sheet at the time of his departure, in March 2021.
In October 2021, the Caisse de dépôt et placement du Québec (CDPQ) announced that it had participated in a US$400 million financing round at Celsius, in partnership with a private investment firm.
The Caisse has never publicly revealed the amount it has invested in it, but a Radio-Canada investigation revealed at the end of May that this amount was US$150 million.
Joined by Radio-Canada, CDPQ did not want to comment on the lawsuit against Celsius, but a spokesperson assured that the Caisse continue to monitor the situation closely
.
A Celsius representative did not respond to our questions.