Ponzi scheme, cryptoasset manipulation and other questionable practices: The content of a lawsuit against Celsius Network raises several questions about the reviews of the Caisse de depot et Placement du Québec (CDPQ) before it poured 190 million into this crypto bank last fall – an investment at serious risk.
Updated yesterday at 4:23pm.
Jason Stone, CEO of KeyFi, a cryptocurrency investment firm, claims Celsius Network failed to pay him the “millions of dollars” owed to him. His claim is not quantified.
According to the lawsuit filed in the New York Supreme Court, Mr. Stone’s company managed the equivalent of “billions of dollars” in assets for his client between August 2020 and March 2021.
The business relationship would have started without a formal agreement but rather with a ‘handshake’ agreement. A few months later the point of no return was reached.
“Faced with mounting evidence of the defendants’ disorganization, mismanagement and fraud, the plaintiff concluded that he could no longer work for them,” the approximately 30-page document reads. In March 2021 [M. Stone] informed [Celsius Network] that he terminates the business relationship. »
These allegations have not yet been proven in court. It was not possible to speak to Mr. Stone. Due to an apparent liquidity crisis caused by the collapse in cryptocurrency prices, Celsius froze withdrawals from its 1.7 million depositors on June 12. According to Reuters, the company hired consultants to explore several options. It could be protected from its creditors.
Platforms like Celsius Network pool cryptocurrency deposits. They offer depositors credit and interest rates often in excess of 10%, which is much higher than what traditional banks offer. These crypto banks are not regulated. Celsius rewarded its depositors with its own virtual currency (CEL), which primarily irritated the stock exchange police in the USA.
Mr. Stone alleges that Celsius has never deployed adequate hedging mechanisms to protect against high market volatility – which it has done since the beginning of the year. The platform would have preferred to use its new customers’ deposits to pay out the returns promised to depositors, the complainant alleges.
While Celsius continued to present itself as a transparent and well-capitalized company, it had actually become a Ponzi scheme.
Jason Stone, CEO of investment firm KeyFi
Regarding the market manipulation allegations, the lawsuit alleges that the platform “artificially” inflated the value of its CEL token by multiplying transactions between February and November 2020. Celsius allegedly made these purchases using its depositors’ bitcoins.
“The purpose of this scheme was both fraudulent and illegal: Celsius tricked customers into getting paid in CEL tokens, it says. By artificially raising the price, Celsius was able to pay customers […] with even fewer cryptoassets. »
The CDPQ declined to comment on the lawsuit on Friday, saying it is “following the situation closely.”
to give answers
The turn of events makes Ivan Tchotourian, a professor at the Law School of Laval University, raise his eyebrows. The allegations will have to stand up to the courts, but the expert believes that the Caisse will have to explain itself.
“There are a number of elements that require particular caution,” Mr Tchotourian said. In everything that was raised in the complaint, I believe there were elements that were detectable during the checks. »
Philippe Jetté, senior cryptocurrency analyst at firm Rivemont Investissements, was particularly surprised by the lack of a written agreement between Mr. Stone and Celsius. Large sums appear to have been administered “without the slightest written agreement, without a protective structure”.
“If all of this is true, what sort of due diligence could the Caisse undertake to miss such glaring red flags? asks Mr. Jetté.
On Friday, Celsius did not respond to questions from The press.
What is a pyramid scheme?
This consists of using an investor’s funds to pay false returns to other investors or to compensate those who want their money back, according to the Autorité des Marchés Financiers.
- 3 billion
- Estimated value of Celsius Network last fall when CDPQ invested in the company
Source: Caisse de depot et Placement du Quebec