Bankrupt crypto lender Celsius sues ex-money manager over alleged theft

Celsius accused Mr Jason Stone and his company KeyFi of "gross negligence" and "extraordinarily inept" crypto investing. PHOTO: REUTERS

NEW YORK (REUTERS) - Celsius Network on Tuesday (Aug 23) sued a former investment manager, accusing him of losing or stealing tens of millions of dollars in assets before the crypto lender went bankrupt last month.

In a complaint filed in the Manhattan bankruptcy court, Celsius accused Mr Jason Stone and his company KeyFi of "gross negligence" and "extraordinarily inept" crypto investing, after Mr Stone falsely portrayed himself as a pioneer in the field.

Celsius said Mr Stone proved "incapable" of deploying coins profitably, causing "many tens of millions of dollars" in losses.

It said he then misappropriated assets to buy hundreds of non-fungible tokens (NFTs) that he stored out of reach, and covered his tracks by using Tornado Cash, a crypto "mixer" that the US Treasury Department sanctioned on Aug 8 because it might help launder cybercrime proceeds.

A crypto mixer, also known as a tumbler, mixes different streams of potentially identifiable cryptocurrency, improving the anonymity of transactions.

Tuesday's lawsuit was filed six weeks after KeyFi sued Celsius in a New York state court in Manhattan.

It claimed that Celsius ran a Ponzi scheme, mismanaged customer deposits, failed to hedge investments, and cheated Mr Stone out of potentially hundreds of millions of dollars of compensation.

Mr Stone worked with Celsius for about seven months ending in March 2021, court papers show.

In an e-mailed statement, Mr Stone's lawyer Kyle Roche said KeyFi's compensation, including NFTs, had been authorised by Celsius chief executive Alex Mashinsky.

"Celsius's most recent filing is an attempt to rewrite history and use KeyFi and Mr Stone as a scapegoat for their organisational incompetence," Mr Roche said.

Both lawsuits seek to recoup sums that each side believes the other owes, plus compensatory and punitive damages.

US-based Celsius filed for Chapter 11 protection from creditors on July 13, one month after freezing withdrawals and transfers for its 1.7 million customers because of "extreme" market conditions.

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