Troubled crypto lender Celsius accused of being Ponzi scheme in lawsuit

8 Jul 2022

Image: © Ascannio/

The lawsuit comes after Celsius paused all transactions due to ‘extreme market conditions’, while the volatile crypto industry moves towards possible regulation.

A former investment manager for Celsius Network has filed a lawsuit against the crypto lender, accusing the company of manipulating the market.

The lawsuit claims Celsius used customer deposits to control the price of its own crypto token and failed to properly hedge risk, leading to large losses.

Jason Stone, the CEO and co-founder of KeyFi who formerly managed assets for Celsius, accused the company of being a Ponzi scheme and said KeyFi is owed millions of dollars “pursuant to a profit-sharing agreement” between the two companies.

The lawsuit comes less than a month after Celsius paused all transactions for its 1.7m customers, citing “extreme market conditions”. The company’s own crypto token, CEL, had plummeted by more than 90pc in value in less than three months.

Stone said he exited the business relationship in March 2021 after it became clear that Celsius failing to hedge risk “could be financially ruinous” for the company and could damage KeyFi’s reputation.

According to the lawsuit, KeyFi estimates that gross profits generated through the agreement between the companies exceeded $838m before costs and expenses. The document said that both parties “envisioned that the majority of profits would be generated from DeFi activity and that KeyFi would receive 20pc of these net profits”.

Crypto industry concerns

The lawsuit comes amid a general downturn in crypto assets, with both bitcoin and Ethereum recently hitting their lowest values in more than a year.

This week, crypto lender Voyager Digital filed for bankruptcy amid “prolonged volatility and contagion” in the cryptocurrency market. This happened a week after Voyager suspended all withdrawals, deposits and trading on the platform to give itself time to explore financial strategies.

Amid this downturn, the US Treasury published a framework for international crypto regulation yesterday (7 July). This marks the first publication to result from US president Joe Biden’s executive order on digital assets earlier this year, and outlines how the US could work with foreign regulators to address the crypto sector.

The EU is looking to become a standard setter in this area and at the end of June provisionally agreed on new anti-money laundering rules to put an end to “the Wild West of unregulated crypto”.

Meanwhile, a recent report by blockchain security company CertiK painted a bleak picture of the industry’s cybersecurity standing. The report claimed Web3 projects lost more than $2bn to hacks and exploits in the first half of 2022, which is more than all of 2021 combined, The Verge reported.

Elsewhere, the NFT space has also been facing a spiral, with once-popular digital assets reaching extremely low values. In response, NFT companies are hiring full-time ‘vibe managers’ to keep morale high and promote projects to newcomers, according to The Guardian.

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Leigh Mc Gowran is a journalist with Silicon Republic