A former money manager for Celsius Network said in a complaint that the cryptocurrency lender, which last month had its assets frozen, had lost hundreds of millions of dollars by failing to hedge risk and had instead used customer funds to manipulate the price of its token.
By giving consumers who deposited their cryptocurrency interest rates as high as 18%, Celsius collected assets worth more than $20 billion. Alex Mashinsky, the company’s founder, rejected doubts about its viability by pointing out that it was able to generate high rates on its own.
Nevertheless, a lawsuit brought on Thursday in New York state court by KeyFi Inc., the company started by the former money manager Jason Stone, claims that Celsius was having trouble paying out the payouts and had experienced “severe exchange rate losses” as a result of the fluctuating values of various coins.
In his lawsuit, Stone referred to Celsius as a Ponzi scheme and claimed that it defrauded him of prospective payment of hundreds of millions of dollars. A request for comment was not immediately answered by a Celsius spokeswoman. KeyFi’s attorney, Kyle Roche, declined to comment.
The accusations come as crypto markets are experiencing a credit crisis. Broker Voyager Digital Ltd. filed for bankruptcy last week, hedge fund Three Arrows Capital was ordered into liquidation last month, and other companies that offer high-yield products, such as Babel Finance and Vauld, have banned withdrawals.
Since June 12, users of Celsius have been unable to access their money. On June 30, the firm said that it was thinking about restructuring its debt. According to the lawsuit, Celsius secretly invested client money without adequate controls in dangerous trading techniques. Celsius began sending hundreds of millions of dollars to Stone’s company, KeyFi, beginning in August 2020.
According to Stone’s claim in the lawsuit, Celsius permitted him to purchase NFTs as a sort of advance on his portion of the trading earnings. He claims that Mashinsky transferred some of them to his wife’s wallet after he quit the Company.
The New York State Supreme Court is hearing the case of KeyFi Inc. v. Celsius Network Ltd. and Celsius KeyFi LLC.
Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.
