Ex-business partner accuses Celsius of being a 'Ponzi scheme'

0
182

Former business partner accuses Celsius of being a “Ponzi scheme”

The Caisse de depot et placement du Québec (CDPQ) had invested US$150 million in the company, which operates in the field of cryptocurrency.

Celsius CEO Alex Mashinsky during a broadcast on YouTube, May 22, 2022.

In a lawsuit filed in New York state on Thursday, a former Celsius Network business partner accuses the company of being a “fraudulent Ponzi scheme” and of putting his clients' funds at risk with his risky practices.

The claimant, Jason Stone, is the CEO of KeyFi, a crypto investment firm . In the lawsuit, he claims that his company managed, between August 2020 and March 2021, the equivalent of billions of dollars on behalf of Celsius. To accomplish this, KeyFi integrated the operations of Celsius and formed a subsidiary named Celsius KeyFi.

Celsius acts as a sort of bank in the crypto world. Its clients can deposit cryptoassets there and get a return on their deposits. They can also borrow cryptoassets or cash by placing cryptoassets with Celsius as collateral.

Even if such large amounts were involved, Mr. Stone alleges that no formal agreement had been reached between Celsius and KeyFi, the two companies having instead agreed on a handshake.

In the lawsuit, Mr. Stone claims he quickly saw disorganization, mismanagement and fraud at Celsius and deemed the company's business practices so corrupt that he quit. in March 2021. He is suing the company since he considers that Celsius has not paid him the profits that were due to him.

He alleges he discovered that Celsius did not have basic security controls in place to protect the billions of dollars in funds entrusted to him by his clients.

Mr. Stone adds that he believes Celsius' practices have harmed the hundreds of thousands of people who use [the platform] and led to the company's current situation.

Recall that following a collapse in the crypto market, Celsius announced on June 12 that it had suspended withdrawals on its platform. Since then, the company has been silent and its customers no longer have access to the cryptoassets they have entrusted to it.

Jason Stone says Celsius' business model is to use deposits from its new clients to pay returns to its custodians. He alleges that Celsius began offering returns of more than 10% on deposits in February 2021, hoping to attract new customers to weather a liquidity crunch.

As a result, while Celsius continued to portray itself as a transparent and well-capitalized company, it had in truth become a fraudulent Ponzi scheme, the lawsuit reads.

A Ponzi scheme involves finding new investors and using their funds to compensate investors who have come on board earlier. This type of pyramid scheme is considered fraudulent.

Jason Stone also alleges that Celsius used customer deposits to manipulate the value of CEL, a cryptocurrency created by Celsius. The company encourages its customers to use CEL by offering more attractive interest rates if they accept that Celsius pays them their profits in CEL.

According to Mr. Stone, Celsius and its managers have little experience in trading and investing in cryptoassets, despite the colossal sums entrusted to it by its clients. Shortly before pausing withdrawals, Celsius claimed to manage some US$12 billion in cryptoassets for its clients.

Mr. Stone says Celsius' lack of experience left the company with a $100 million to $200 million hole in its balance sheet when he left in March 2021.

In October 2021, the Caisse de dépôt et placement du Québec (CDPQ) announced that it had participated in a US$400 million financing round at Celsius, in partnership with a private investment.

The Caisse has never publicly revealed the amount it has invested in it, but a Radio-Canada investigation revealed at the end of May that this amount was US$150 million.

A Celsius representative did not respond to our questions. At the time of publication, the CDPQ had also not responded to our requests.

LEAVE A REPLY

Please enter your comment!
Please enter your name here