DeFi contractor Celsius accuses platform of fraud.

Former Celsius contractor — KeyFi Inc. — filed a lawsuit against the lending platform, accusing it of failing to fulfil contractual obligations. The founder of the company, Jason Stone, stressed that the defendant owes his organisation “a significant amount of money.”

You can find a copy of the filing here. I hope that this sheds some light not only on the history of 0xb1, but on how @CelsiusNetwork has conducted itself over the past few years in general. https://t.co/FNHs7fDb3B

— 0xb1 (@0x_b1) July 7, 2022

“Considering public speculation about the company’s insolvency and my observations regarding Celsius’s dishonesty, I believe it would be prudent to finally clarify the situation. I filed a lawsuit against Celsius to settle this matter once and for all,” Stone wrote.

KeyFi worked with Celsius from August 2020 to April 2021. The company participated in staking on behalf of the lending platform and implemented DeFi-focused investment strategies for it.

According to the complaint, during this period KeyFi “generated hundreds of millions of dollars in profit.” Celsius, in turn, took on risk-management obligations — its trading teams were supposed to “hedge any impermanent losses from activity in liquidity pools”.

According to Stone, at some point KeyFi managed Celsius’s assets at $2 billion. However, the parties “spent most of this time working without any formal written agreement,” according to the court filing.

“By the end of February 2021 we discovered that we had been deceived. They did not hedge our activity, did not hedge the price swings on crypto assets. The entire portfolio of the company had no collateral,” said the head of the company.

He also found other serious violations, including in accounting.

“Stone learned of numerous instances where the defendant’s failure to maintain basic accounting jeopardised client funds. […] Incorrect accounting of certain payments due to clients led to liabilities of $200 million, about which the company did not even know and did not understand why it should have,” the suit states.

In March 2021, KeyFi decided to sever ties with the lending platform. According to Stone, he spent more than a year trying to resolve this matter, as Celsius owed his company “a significant amount of money.”

Unable to recover the funds, the plaintiff filed suit. He accused Celsius of market manipulation, mismanagement and running a Ponzi scheme:

“As clients sought to withdraw their ETH deposits, Celsius was forced to buy cryptocurrency on the open market at high prices, incurring large losses. Facing a liquidity crisis, Celsius began offering double-digit yields to attract new depositors, whose funds were used to pay down the positions of earlier investors and creditors”.

KeyFi seeks return of its assets owed to it and compensation, the amount of which will be determined during the proceedings.

Earlier reports suggested that investment bank Goldman Sachs to raise $2 billion to buy Celsius’s assets.

Georgetown University Law professor Adam Levitin called the platform’s bankruptcy virtually inevitable.

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