Celsius sued by crypto asset manager KeyFi
KeyFi, a former asset manager for Celsius, sued the struggling crypto lending firm, alleging that it was not being paid for its work and that Celsius mismanaged client funds.
The lawsuit is the latest twist in the saga of Celsius, which halted withdrawals and transfers after a liquidity crunch and its exposure to volatile crypto assets such as UST and Terra-staked ether, or stETH.
KeyFi managed approximately $2 billion in client assets for Celsius through the popular but previously anonymous 0xb1 crypto address August 2020 to March 2021, according to lawsuit and KeyFi CEO tweets Jason Stone.
The lawsuit filed in New York state court says Celsius assured KeyFi that it monitors and hedges KeyFi’s investments to guard against write-downs, including impermanent losses, a type of loss that can occur when crypto is held in liquidity pools.
However, KeyFi discovered in February 2021 that Celsius was not protecting itself at all, the lawsuit says, and KeyFi then sought to end its work for Celsius.
Celsius co-founders Alex Mashinsky and Nuke Goldstein already knew Stone before partnering with KeyFi because the co-founders had previously invested “tens of thousands of dollars” in KeyFi, the lawsuit says.
KeyFi’s original investment deal was a handshake deal in August 2020, after which Celsius created the 0xb1 address, transferred hundreds of millions of dollars to it, and gave access to KeyFi, the company says. complaint. (They later signed a memorandum of understanding regarding intellectual property.)
The lawsuit states: “Despite the incredible value of the transferred assets and the parties’ intention to share the profits on the transferred assets, there was no formal written agreement between the parties. On the contrary, Celsius continued to transfer hundreds of millions of dollars to Stone, which Stone and his team continued to invest, all on the basis of a handshake agreement that the parties would deal with each other honestly and frankly and settle who owed what to whom at a later date.”
The lawsuit also alleges that Celsius used its customers’ bitcoin to buy Celsius’s own CEL tokens to artificially inflate the price of the tokens, which the insiders and founders owned. Celsius also used CEL tokens as interest payments for customer deposits instead of other liquid tokens or currencies. The lawsuit also alleges accounting errors that left big holes in Celsius’ balance sheet.
KeyFi also alleges in the lawsuit that Celsius is a Ponzi scheme and is now insolvent because it must keep bringing in new capital to pay the interest. It indicates that Celsius borrowed $1 billion of Tether – which was reported by Bloomberg last year – at an interest rate of 5% to 6% but paid customers much higher rates for USDT and similar tokens.