Celsius accused of market manipulation by ex-employee

Celsius accused of market manipulation by ex-employee

Embattled crypto lender Celsius is facing fraud allegations from a former employee over alleged manipulation of crypto markets and failure to implement basic account controls last year.

Jason Stone, CEO of staking software and strategy company KeyFi, filed a lawsuit on Wednesday before the New York State Supreme Court, accusing Celsius of market manipulation.

Stone also accuses Celsius of refusing to fulfill its contractual obligations to pay him "the millions of dollars owed to him under a profit-sharing agreement," the filing says.

It's the latest development for the troubled lender, which last month halted account withdrawals citing "extreme market conditions." Celsius has resisted calls from its lawyers to file for Chapter 11 bankruptcy, instead implementing a “HODL” mode feature that allows users to show their support by choosing not to withdraw their funds for an extended period of time.

KeyFi, whose assets and team were acquired by Celsius in mid-2020, set out to manage hundreds of millions of dollars in customer deposits, Stone said in a Statement on Twitter under his anonymous handle 0x_b1.

Celsius' risk management team monitored KeyFi's investment strategies and performance through its portfolio management platform HedgeGuard and DeFi dashboard DeBank.

“She [Celsius] assured me that as part of this monitoring, her trading teams are adequately hedging any potential temporary loss from our liquidity pool activities,” Stone said in his statement. “They also assured me that they have risk management and hedging in place to account for fluctuations in token prices.”

A temporary loss occurs when a liquidity provider's locked deposited assets in a liquidity pool change in spot value compared to when they were deposited.

Celsius executives repeatedly assured Stone that the lender had the necessary hedging transactions in place to ensure that price fluctuations in certain cryptos would not materially and negatively impact the company or its ability to repay depositors, the filing said.

Although Celsius lied, according to the allegations laid out in the lawsuit and in Stone's statement. Stone and his team relied on Celsius' factual representations when applying certain trading strategies.

“Celsius failed to implement fundamental risk management strategies to protect against the risks of price fluctuations inherent in many of the investment strategies employed,” the filing said.

As alleged evidence of mismanagement and fraud mounted, Stone concluded that he could no longer work with Celsius and terminated his relationship with the lender.

When Celsius and KeyFi separated in March last year, the company was managing nearly $2 billion in assets on behalf of the lender, Stone said.

“The unfortunate events that have unfolded publicly in recent weeks demonstrate that Plaintiff was right – Celsius grossly mismanaged its client funds, failed to conduct essential internal audits to meet its obligations, and manipulated crypto assets for its own benefit and that of its principals.” the file reads.

Stone, who is demanding a jury trial, is seeking an award of compensatory damages in an amount to be determined at trial and the recovery of money owed as well as pre- and post-judgment interest. Celsius has 20 days to respond to the complaint. Failure to appear in court or provide a response to the complaint will result in a default judgment against the lender, the filing states.

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The article Celsius accused of market manipulation by ex-employee is not financial advice.