The Celsius drama took a dramatic turn on Friday July 8 when former employee Jason Stone instigated legal proceedings via a summons filed in the New York Supreme Court.
Stone, whose company KeyFi was purchased by Celsius in 2020, has levelled a myriad of charges against the centralised finance (CeFi) platform, including:
- Refusal to honour a multimillion-dollar profit-sharing agreement entered into in January 2021
- Refusal to honour requests from customers to withdraw their funds
- Operating as a Ponzi scheme and
- Lacking basic security controls for billions of dollars in held customer funds
The rap sheet does not end there, painting an ugly picture of mismanagement, market manipulation, lack of due diligence, lies and fraud.
Given the public speculation about the company’s solvency, and my observation of Celsius’ loose relationship with the truth, I feel it is only prudent to finally set the record straight. I have brought legal action against Celsius to settle this issue once and for all.
— 0xb1 (@0x_b1) July 7, 2022
In a lengthy string of Tweets, Stone disclosed that he managed the popular yield farm known as 0xb1 (referring to the first four digits of its Ethereum address), which Stone claims was managing nearly $2bln of assets on behalf of Celsius at its peak.
But in late Feb 2021, we discovered Celsius had lied to us. They had not been hedging our activities, nor had they been hedging the fluctuations in cryptoasset prices. The entire company’s portfolio had naked exposure to the market.
— 0xb1 (@0x_b1) July 7, 2022
Celsius’ chief executive officer Alex Mashinsky, who has not made any public statements for over three weeks, has been accused of using the 0xb1 account for his own personal gain.
Kick 'em when they're down
The summons could not come at a worse time for Celsius.
The London-registered company is attempting to pay off the remainder of a $200mln loan obligation before even thinking of reopening customer accounts, while short sellers continue to place downward pressure on the CEL token.
But Stone is also facing valid criticism over his timing.
The fact that Stone could have launched legal proceedings a year ago when he became aware of Celsius’ apparent lack of competence, instead of waiting till now, is curious.
Certain points made in the summons fail to cast Stone in a positive light, particularly concerning the profit-sharing agreement central to the dispute that was seemingly made without any formal paper trail.
“Celsius continued to transfer hundreds of millions of dollars to Stone, which Stone and his team continued to invest, all on a handshake agreement that the parties would deal with each other honestly and squarely and settle up who owed what to whom at some later date,” the document written by the Roche Freedman law firm states.
It is unclear how this lawsuit will impact the likelihood of Celsius customers finally receiving access to their locked-up funds.
The development comes amid a number of disputes and bankruptcies in the cryptocurrency sector this week, including Voyager Digital’s Chapter 11 and a class-action lawsuit against blockchain developer Solana Labs concerning the sale of unregistered securities.
At this stage, the claims made in the lawsuit have not been verified.
Celsius has 20 days to respond to the summons.