Celsius countersues KeyFi and alleges ‘incompetence and deceit’

Celsius, the New Jersey-based bankrupt cryptocurrency lending company, has countersued decentralized DeFi aggregator KeyFi and its CEO Jason Stone. It is claiming that KeyFi lost CEL worth millions of dollars through incompetence and deceit.

Celsius’s suit comes on the heels of KeyFi suing Celsius a few weeks back for allegedly failing to honour a profit-sharing agreement.

Mismanagement and deceit?

Celsius claims that KeyFi CEO Jason Stone falsely represented himself as a pioneer and expert in coin staking and decentralized finance investments. However, KeyFi allegedly lost coins from Celsius wallets worth millions of dollars due to mismanagement and deceit. Celsius also alleges that KeyFi used these stolen coins to buy hundreds of NFTs and transferred them to its wallets. It has also sold some of these assets for seven-figure returns, the lawsuit alleges.

Celsius also alleges in its lawsuit that Stone and KeyFi relied on the cryptocurrency mixer, Tornado Cash. Stone and KeyFi laundered millions of dollars of Celsius property on multiple occasions using the same, it added.

Tornado Cash was recently blacklisted by the U.S. Department of the Treasury due to its use in multiple money laundering cases.

Celsius has demanded that KeyFi should be made to pay punitive damages for its criminal misconduct.

The suit also claims that in August 2020, Celsius and Stone agreed that Celsius would set up a wholly-owned subsidiary to acquire KeyFi assets and operate Celsius’s staking and DeFi activities with Stone as the CEO of that subsidiary. When Celsius found out that KeyFi had been using Celsius coins for other purposes, it asked Stone to return the coins.

In late March 2021, Stone replied that the KeyFi team would ensure the “complete return of all Celsius tokens (principal + interest earned) managed by KeyFi by the end of April at the latest.”

KeyFi’s allegations against Celsius

It was only in early July that KeyFi sued Celsius for allegedly not honouring a profit-sharing agreement and failing to pay KeyFi millions of dollars.

A MoU was signed by KeyFi and Celsius, requiring KeyFi to operate as Celsius KeyFi, a Celsius-owned subsidiary. Both the groups worked together during August 2020- March 2021.

Stone also claimed on Twitter that Celsius took new loans with high interest rates to repay former depositors and creditors, acting like a Ponzi scheme. He also added that while Celsius informed that it would hedge any potential impermanent loss from the joint operations in liquidity pools, it did not do so.

“The entire company’s portfolio had naked exposure to the market.”

Unending battles

It was in July this year that Celsius filed

for Chapter 11 Protection in the U.S, leaving its 1.7 million users in a panic. Chapter 11 of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

During the crypto crash in May, Celsius was reported to have witnessed a 50% decline in the value of its assets. The same month, two leading digital tokens, viz. Luna and TerraUSD, collapsed. The Wall Street Journal soon reported the analytics firm Nansen’s findings that Celsius was involved in the crisis, despite a denial.