Jason Stone, a former investment manager and founder of KeyFi, has sued cryptocurrency lender platform Celsius and its founder and former CEO, Alex Mashinsky. In his lawsuit, Stone alleges that Mashinsky was running a Ponzi Scheme.
Crypto Collaboration
According to allegations, Stone’s company, KeyFi, specialized in crypto trading strategies, and had a “handshake deal” with Mashinsky and Celsius for KeyFi to “manage billions of dollars in customer crypto-deposits in return for a share of the profits generated from those crypto-deposits,” according to Stone’s lawsuit.
Beginning in August 2020, Celsius set up a crypto wallet on the Ethereum blockchain, naming it “0xb1.” Celsius then began transferring what’s described in the lawsuit as “hundreds of millions of dollars in crypto-assets” to Stone and his team.
Stone and Celsius began engaging in trading strategies that required an effective hedging strategy for managing risk and guard the deposits against price fluctuations of specific digital coins. Celsius was always aware of the trading strategies and activities that KeyFi employed.
Representatives from Celsius assured Stone that completed the necessary hedging transactions for specific crypto assets to prevent price fluctuations from impacting the company or its ability to repay its depositors. Stone and his team relied on these assurances going forward.
Unfortunately, Celsius was not telling the truth, and failed to implement “basic risk management strategies” to mitigate price fluctuations that came with many of the investment strategies KeyFi utilized.
Stone’s lawsuit also alleges that Celsius failed to use basic accounting which also endangered the customer funds.
The CEL Token
Celsius also had its own crypto coin, called CEL Token. The company offered higher interest payments to customers who agreed to accept their payments in CEL.
Stone’s lawsuit alleges that Mashinsky engaged in transactions to artificially inflate the price of CEL tokens. By artificially inflating the value, the company actually paid these customers less of the token than those who chose not to accept CEL.
The Celsius Ponzi Unravels
Stone also alleges in his lawsuit that Celsius was little more than a Ponzi scheme in which Mashinsky “enriched himself considerably.”
Celsius failed to enact appropriate safeguards, it had “massive liabilities” to the depositors, and did not keep enough of the digital coins available to cover those liabilities. When customers began to make withdrawals of their ether deposits around January of 2021, Celsius was forced to buy more on the open market at high prices to cover them. The company suffered substantial losses.
To compensate, Celsius began offering double digit interest rates to new depositors to bring in additional cash needed to pay creditors and previous depositors.
Stone ended his relationship with Celsius in March of 2021. He states in his lawsuit that when he left, Celsius was missing $100 million to $200 million from its balance sheet that “it could not fully explain or resolve.” Celsius still maintains control over the “0xb1” Ethereum wallet and Mashinsky still uses it “for his own personal benefit.” Stone alleges that Mashinsky recently transferred some valuable NFTs (non-fungible tokens”) into his wife’s crypto wallet.
Did You Invest With Celsius?
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