Aug 24, 2022 - Economy

Crypto lender Celsius files lawsuits in attempt to recover funds

Illustration of scales of justice holding a line graph.

Illustration: Eniola Odetunde/Axios

Crypto lender Celsius Network appears to be emerging from its defensive crouch amid bankruptcy proceedings started last month, filing a pair of lawsuits in an attempt to claw back funds.

Why it matters: Even an award of tens of millions of dollars worth of coins from favorable rulings would hardly make a dent in Celsius' liabilities, currently measured in billions. But the details introduced in the suits will likely come up again.

Driving the news: The firm on Tuesday filed two lawsuits. One firing back at its former investment manager, Jason Stone, countersuing him and his company KeyFi for "millions" in alleged stolen coins.

  • The other suit, against Prime Trust, accuses the custodian of being in possession of $17 million worth of coins rightfully belonging to Celsius dating back to their business relationship, which ended abruptly in June 2021.

Catch up fast: Since Celsius started bankruptcy proceedings in July, customers have written over 250 letters to the judge explaining their plight of having their life's savings locked up on the lender's platform, coming up with solutions and accusing Celsius of fraud.

  • Celsius CFO Chris Ferraro in a hearing last week said that the lender likely had enough funds for operations through the end of the year and expects the firm to be cash-flow positive in early 2023.

The intrigue: A U.S. Justice Department official last week asked the judge overseeing Celsius' bankruptcy proceeding to appoint an independent examiner, like the ones appointed to messy, high-profile cases. (Think: Enron or Lehman Brothers).

  • An examiner's job is to figure out how things fell apart. (The Lehman examiner's 2,200 page report laid out in detail the investment manager's unwinding).
  • Celsius via one of its social media accounts opposes this, citing the cost of the examination.

Details: Celsius' countersuit to Stone's alleges "incompetence, deceit and conversion" as well as "millions stolen" from a number of the crypto lender's wallets that were then used to buy hundreds of NFTs and/or also, obfuscated via the now-sanctioned Tornado Cash.

The other side: Recall Stone's suit alleged Celsius owed him and KeyFi "millions" via a profit-sharing agreement and accused the crypto lender of running its business like a Ponzi scheme.

What they're alleging: "Stone knew he was not authorized to convert Celsius coins into NFTs. Certainly, Stone knew he was not allowed to steal from Celsius, but that is exactly what he did," Celsius' countersuit alleges.

  • Bullrun Babes, Cryptopunks and other unnamed NFTs belong to Celsius and any funds Stone invested in platforms or ventures using Celsius' funds, also, rightfully belong to Celsius, the suit claims.

The suit against Prime Trust alleges the custodian held coins now valued at $17 million. Assets that hang in the balance: 398 bitcoin, 196,268 celsius (CEL) tokens, 3,740 ether, and 2,261,448 USDC stablecoins, according to Celsius' suit.

  • Prime Trust and Celsius partnered in March 2020 and the funds Celsius is alleging Prime owes is related to accounts held by customers in New York and Washington the custodian services.

Jason Stone did not respond to queries sent via social media; neither Prime Trust nor Celsius responded to emailed queries.

What's next: Celsius' next hearing is on Sept. 1 at 10am ET.

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