Ex-employee Accuses Celsius Network of Fraud

Celsius Network, which froze assets last month, used customer funds to manipulate the price of its own token, a former employee alleges. The company's money manager has launched a lawsuit.

Celsius Network has accumulated more than $20 billion by offering 18% interest on cryptocurrency deposits. Alex Mashinsky, the company's founder, said high rates were sustainable.

A lawsuit was filed Thursday in New York state court by KeyFi Inc., created by former Geld Managing Director Jason Stone. It alleges that Celsius struggled to cover dividends and experienced "substantial exchange rate losses" owing to fluctuating coin values.

Stone labels Celsius a Ponzi scheme in his case and alleges he was scammed out of millions in wages. Celsius's spokeswoman didn't immediately comment.

KeyFi attorney Kyle Roche declined to comment.

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The allegations come amid a Bitcoin credit shortage. Three Arrows Capital was liquidated last month. Voyager Digital Ltd filed for bankruptcy on July 6, and Babel Finance and Vauld have ceased payouts. Since June 12, Celsius Network users can't access funds.

The corporation considered debt restructuring on June 30. More than a million people have saved using Celsius. The appeal was obvious: the interest was 10 to 100 times higher than traditional savings accounts.

Celsius allegedly invested client assets in dangerous trading tactics without sufficient oversight. Celsius began transferring millions to Stone's startup KeyFi in August 2020.

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Stone obtained the private cryptographic keys to the funds, so he might have eloped with them, the complaint says. Stone invested through DeFi. It's a group of apps that lets users borrow, lend, and trade without intermediaries. Many apps paid users in cryptocurrencies at the time.

The lawsuit claims KeyFi earned Celsius $800 million through DeFi methods. Stone believes Celsius owes him 20%, but says he hasn't been paid. Stone also claimed that Celsius welcomed Bitcoin and Ethereum deposits, but rewarded strategy with other currencies. If Bitcoin and Ethereum rose faster than the others, Celsius could have more debt even if the company was profitable.

Celsius tracked users' U.S. dollar deposits, whether they owed Bitcoin or other tokens. Stone said this blunder caused a $100-$200 million hole in the balance sheet. Celsius raised $50 million in 2018 by selling a proprietary token, CEL, and its leaders retained substantial stakes. Stone alleges Celsius utilised $90 million in Bitcoin deposits in 2020 to "inflate" CEL. Maschinsky "enriched" himself and let Celsius borrow against CEL, the lawsuit says.

Stone adds that Celsius borrowed one billion Tether to patch its balance sheet. He claims he broke his connection with Celsius in March 2021.

Former Celsius employees told Bloomberg Businessweek in January that Stone used an anonymous Twitter account named 0xb1.

The Creative Artists Agency agreed to represent this account's digital art in licensing arrangements in October. 0xb1 paid $1 million for its profile image, "demon mutant monkey". Stone claims Celsius authorised him to acquire NFTs as a trading profit advance. He believes Mashinsky transferred some to his wife's wallet after leaving.

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