A former investment manager at Celsius Network sued the crypto lender yesterday, saying that it used customer deposits to rig the price of its own crypto token and failed to properly hedge risk, causing it to freeze customer assets, Reuters reported. The complaint said Celsius ran a Ponzi scheme to benefit itself through "gross mismanagement of customer deposits," and defrauded the plaintiff KeyFi Inc., run by the former manager Jason Stone, into providing services worth millions of dollars and refusing to pay for them. Celsius had no immediate comment on the lawsuit, which seeks unspecified compensatory and punitive damages and was filed in New York state court in Manhattan. Stone's accusations follows Celsius' June 12 decision to freeze withdrawals and transfers for its 1.7 million customers because of "extreme" market conditions. The Hoboken, N.J.-based company later hired advisers on a possible debt restructuring, which reportedly could include a bankruptcy filing. Read more.
In related news, Celsius Network LLC has reshuffled its board of directors as the crypto lender struggles with a liquidity crunch brought on by the collapse in digital currencies, according to new securities filings, WSJ Pro Bankruptcy reported. The company last week appointed to its board Alan Carr, founder and chief executive of fiduciary services firm Drivetrain LLC, who is known for serving as a board director at companies that have undergone bankruptcy. Celsius also appointed David Barse, founder and CEO of Xout Capital, a firm that maintains financial indexes. Last month, Celsius terminated board directors Laurence Tosi, John Dubel and Gilbert Nathan. Mr. Tosi had served as the chief financial officer of Airbnb Inc. and Blackstone Inc. before founding growth equity firm WestCap Group, which has a major investment in Celsius, while Mr. Dubel is the founder of restructuring firm Dubel & Associates LLC. Celsius didn’t respond to a request for comment regarding its board’s reorganization. Celsius, which said it had $11.8 billion in assets as of May 17 and 1.7 million users, froze withdrawals, swaps, and transfers last month due to extreme market volatility. The value of its assets has fallen from about $25 billion in October. The company has engaged restructuring consultants from Alvarez & Marsal as well as attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise on options including a potential bankruptcy filing. Celsius pays users annual percentage yields of close to 19% on cryptocurrency deposits, then uses those deposits to make crypto loans. It also provides cash loans to people who pledge their crypto assets as collateral. Celsius said in a blog post last week that it is “focused and working as quickly as we can to stabilize liquidity and operations” and that it is exploring options including “strategic transactions as well as a restructuring of our liabilities.” Read more.
