On Thursday, a former project manager at Celsius Network sued the crypto loan company, saying that it used client funds to set the price of its own crypto token and didn’t do enough to protect against risk, which caused it to freeze client funds.
The complaint said that Celsius ran a Ponzi scheme to help itself through “the ridiculous mess of client stores” and tricked KeyFi Inc, which was shown to the previous supervisor, Jason Stone, into offering services worth a lot of money but not paying for them.
Celsius didn’t say anything right away about the claim, which was filed in a New York state court in Manhattan. It asks for unspecified damages and punishments.
Stone’s claims came after Celsius decided on June 12 to stop withdrawals and transfers for its 1.7 million customers because of “outrageous” economic conditions.
Later, the Hoboken, New Jersey-based company hired lawyers to talk about a possible debt restructuring, which supposedly could include a liquidation plan.
This week, Voyager Digital Ltd. (VOYG.TO), which specialises in crypto loans, filed for financial insolvency protection. At the end of last month, the crypto flexible investments went into liquidation.
Celsius promised retail clients huge returns, up to 19 percent per year at times.
But Stone said Celsius had trouble paying back investors because it didn’t support speculation. This led to “serious” losses as the prices of different coins changed.
He also blamed Celsius for keeping track of some stores in U.S. dollars even though customers paid with bitcoin or other tokens. This left a $100 million to $200 million hole that Celsius “couldn’t fully figure out or solve.”
According to the complaint filed on Thursday, Stone, who mostly worked without a written agreement, made $838 million in profits for Celsius and KeyFi from August 2020 to March 2021, before expenses. KeyFi was eligible for 20% of the net profit.
Stone says he broke up with Celsius in March 2021 because it was clear that the supporting issues “could be financially ruinous” for Celsius and hurt KeyFi’s reputation, but he thought Celsius wouldn’t notice his breakup.
The case is KeyFi Inc. v. Celsius Network Ltd. et al. in the New York State Supreme Court in New York County.
