Celsius Network News: A Lawsuit Filed Against Celsius Claims That It is a “Ponzi Scheme”

Abstract：

• A lawsuit contends that Celsius intentionally raised the price of its own digital coin, failed to hedge risk, and engaged in conduct that amounted to fraud.
• While cryptocurrency prices continue to fall, Celsius‘ former investment manager Jason Stone filed a lawsuit against the company Thursday.
• To put it another way, Stone claims Celsius was running a “Ponzi scheme” in his case.

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A lawsuit contends that Celsius intentionally raised the price of its own digital coin, failed to hedge risk, and engaged in conduct that amounted to fraud. While cryptocurrency prices continue to fall, Celsius’ former investment manager Jason Stone filed a lawsuit against the company Thursday.

After Celsius, a cryptocurrency exchange, was forced to halt withdrawals for its customers due to a liquidity situation, a lawsuit has been filed in New York state court.

Stone and Celsius Have a Close Association

Celsius is similar to a bank in that it pays users a return on their crypto deposits, sometimes as high as nearly 19 percent. In return for a hefty interest rate, the company lends out the cryptocurrency. A portion of the yield is then returned to clients, and this money is pocketed.

KeyFi, the company he started, focused in cryptocurrency trading tactics, and Stone was its first employee. According to the lawsuit, Celsius and KeyFi struck a “handshake contract” where KeyFi would “handle billions of dollars in customer crypto-deposits in return for a part of the revenues produced from those crypto-deposits.”

Plaintiffs in the complaint stated that “there was no formal written agreement” between the parties.

“Hundreds of millions of dollars in crypto-assets” began being transferred to Stone and his crew beginning in August 2020, according to the lawsuit. A wallet called “0xb1” was set up by Celsius on the Ethereum network. The assets Stone was supposed to use were delivered to that location, according to the lawsuit.

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What is Alleged in the Lawsuit?

In the case, Stone accuses Celsius of a slew of wrongdoings.

An appropriate hedging strategy was necessary by Celsius and Stone to manage risk and protect against price swings of particular digital coins, according to the lawsuit. ” It also reveals that Celsius was fully aware of all of KeyFi’s trading activity.

It is alleged that Celsius executives “repeatedly told” Stone that the company has entered the required hedging arrangements to ensure that the price variations of specific crypto assets would not dramatically and negatively influence the company or its capacity to pay depositors’ funds. In addition, the lawsuit states that Stone and his staff relied on these statements.

These pledges, however, were falsehoods. The lawsuit contends that despite Celsius’s repeated assurances, it failed to apply fundamental risk management methods to guard against the price fluctuation risks inherent in many of the deployed investment strategies.

Stone claims Celsius’ “failure to execute basic accounting” put consumer monies at risk in “several occasions.”

CEL’s Price has been Unjustly Inflated by Celsius

An additional allegation centers with the CEL digital coin, a cryptocurrency. To Celsius, this is a personal token. According to Celsius, customers who accept interest payments in CEL may be able to earn a higher rate of interest than those who do not accept CEL.

CEL’s price has been unjustly inflated by Celsius, according to the lawsuit.

In order to get clients to pay in CEL tokens, Celsius allegedly offered them greater interest rates than were legally required. Once the CEL token price had been artificially inflated, Celsius was able to pay clients who had chosen to receive interest payments in CEL tokens even less of the crypto-assets.

Celsius CEO Alex Mashinsky, according to Stone, “was able to profit himself significantly.”

A “Ponzi scheme” is what Stone believes Celsius was running in the case.

Celsius had “huge liabilities” to depositors represented in the cryptocurrency ether, but it had not maintained holdings in that digital token commensurate to those liabilities, according to a lawsuit filed by a former Celsius employee.

If the complaint is to be believed, Celsius allegedly experienced substantial losses when it was obliged to purchase additional ether on the open market at exorbitant prices (around January 2021). Claims have been made by Stone that Celsius began to provide high interest rates in order for them to attract new depositors, whose monies were used to reimburse earlier depositors.

So the lawsuit alleges, Celsius marketed itself as a transparent and well-capitalized company, but in reality, it had become a Ponzi scam.

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Why is Stone no Longer Around?

In March 2021, Stone left Celsius. As he says in the case, “it could not explain or fix” a $100 million to $200 million shortfall in Celsius’s balance sheet at the time of his departure.

Apparently, the “0xb1” Ethereum wallet is still under the control of Celsius, and its CEO is allegedly using it “for his own personal benefit.” Stone claims that Mashinsky transferred precious non-fungible tokens (NFTs) from the accounts to his wife’s wallet in one case.