Former business partner accuses Celsius of being a ‘ponzi scheme’

The plaintiff, Jason Stone, is the CEO of KeyFi, an investment firm active in the crypto world. In the lawsuit, he claims that his company managed the equivalent of 2020 euros between the months of August 2020 and March 2021 billion dollars on behalf of Celsius. To this end, KeyFi integrated Celsius’ activities and formed a subsidiary called Celsius KeyFi.

Celsius acts as a kind of bank in the crypto world. Its customers can deposit crypto assets there and receive a return on their deposits. They can also borrow crypto assets or cash by depositing crypto assets with Celsius as collateral.

Even when such large amounts were involved, Mr. Stone claims that there was no formal agreement between Celsius and KeyFi, but that the two companies agreed to it a handshake.

In the lawsuit, Mr. Stone says he found him quickly Disorganization, mismanagement and fraud at Celsius and evaluated the company’s business practices so corrupt that he left it in March 2021. He is suing the company, believing that Celsius failed to pay him the profits he was entitled to.

He claims to have discovered this 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 he believes Celsius’ practices have been harmful to the hundreds of thousands of people who use it [la plateforme] and led to the current situation of the company.

Recall that after a crypto market crash on June 12, Celsius announced that it had suspended payouts on its platform. Since then, the company has remained silent and its customers no longer have access to the cryptoassets entrusted to it.

An alleged pyramid scheme

According to Jason Stone, Celsius’s business model is to use deposits from its new customers to pay returns to its custodians. He claims that Celsius started offering returns of more than 10% on deposits in February 2021, hoping to attract new customers to deal with a liquidity crisis.

As a result, Celsius, while continuing to present itself as a transparent and well-capitalized company, had in fact become a fraudulent Ponzi scheme.we can read in the lawsuit.

A Ponzi scheme involves finding new investors and using their funds to compensate investors who came 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 Celsius paying them their winnings in CEL.

In Mr. Stone’s estimation Celsius and its managers have little experience in trading and investing in crypto assets, despite the colossal sums entrusted to them by their clients. Just prior to the pause in withdrawals, Celsius claimed to be managing around $12 billion in crypto assets from its customers.

Mr Stone says Celsius’s lack of experience meant the company had M$US et 200M$US dans son bilan comptable”,”text”:”un trou d’entre 100M$US et 200M$US dans son bilan comptable”}}”>a $100 to $200 million hole in its balance sheet at the time of his departure in March 2021.

In October 2021, Caisse de dépôt et Placement du Québec (CDPQ) announced that it had participated in a $400 million funding round at Celsius in partnership with a private investment firm.

The Caisse has never publicly disclosed the amount it has invested in it, but an investigation by Radio-Canada in late May found the amount totaled $150 million.

Along with Radio-Canada, CDPQ declined to comment on the lawsuit against Celsius, but a spokesman assured the Caisse continue to monitor the situation closely.

A representative from Celsius did not respond to our questions.

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