Ponzi scheme, manipulation of cryptoassets and other questionable practices: the content of a lawsuit against Celsius Network raises several questions about the verifications of the Caisse de depot et placement du Québec (CDPQ) before injecting 190 million into this cryptobank last fall – an investment in serious jeopardy.
Posted at 11:31 a.m.
Updated at 4:23 p.m.
CEO of KeyFi, a cryptocurrency investment firm, Jason Stone alleges that Celsius Network failed to pay him the “millions of dollars” owed to him. His claim is not quantified.
According to the lawsuit filed in the New York Supreme Court, Mr. Stone’s company managed, for his client, the equivalent of “billions of dollars” in assets between August 2020 and March 2021. The business relationship would have started without a formal agreement, but rather with a “handshake” type agreement. A few months later, the point of no return was reached.
“In the face of mounting evidence of defendants’ disorganization, mismanagement and fraud, plaintiff concluded that he could no longer work for them,” reads the approximately 30-page document. In March 2021 [M. Stone] informed [Celsius Network] that he was terminating the business relationship. »
These allegations have yet to be proven in court. It was not possible to speak with Mr. Stone. Due to what appears to be a liquidity crisis caused by the collapse of cryptocurrency prices, Celsius froze withdrawals from its 1.7 million depositors on June 12. According to Reuters, the company would have hired advisers to evaluate several options. It could be sheltered from its creditors.
Platforms like Celsius Network pool cryptocurrency deposits. They offer loans and interest, often above 10%, to depositors, which is much higher than what traditional banks offer. These cryptobanks are unregulated. Celsius remunerated its depositors with its own virtual currency (CEL), which irritated stock market police in the United States, in particular.
Mr Stone alleges that Celsius never deployed adequate hedging mechanisms to guard against high volatility in the markets – which has happened since the start of the year. The platform would rather have used the deposits of its new customers in order to pay the returns promised to the depositors, claims the complainant.
“While Celsius continued to present itself as a transparent and well-capitalized company, it had, in effect, become a Ponzi scheme,” he argues.
What is a Ponzi scheme?
This consists of using an investor’s sums to pay false returns to other investors or reimburse those who wish to recover their money, according to the Autorité des marchés financiers.
Regarding the market manipulation allegations, the lawsuit claims that the platform “artificially” inflated the value of its CEL token by multiplying transactions between February and November 2020. Celsius allegedly made these purchases with its depositors’ bitcoins.
“The purpose of this scheme was both fraudulent and illegal: Celsius was inducing customers to be paid in CEL tokens, it reads. By artificially inflating the price, Celsius was able to pay customers […] with even fewer cryptoassets. »
The CDPQ declined to comment on the lawsuit on Friday, saying it was following “the situation closely”.
Answers to give
The turn of events raises eyebrows Ivan Tchotourian, professor of law at the Faculty of Law at Laval University. The allegations will have to pass the test of the courts, but the expert believes that the Caisse must explain itself.
“There are a series of elements that require extra caution,” said Mr. Tchotourian. With everything raised in the complaint, there were, in my opinion, elements detectable during the checks. »
Phillippe Jetté, senior cryptocurrency analyst at the firm Rivemont Investissements, was particularly surprised by the absence of a written agreement between Mr. Stone and Celsius. Large sums seem to have been managed “without the slightest written agreement, without a protection structure”.
“If all of this is true, what kind of due diligence has the Caisse been able to do to miss such glaring red flags? asks Mr. Jetté.
On Friday, Celsius did not respond to questions from The Press.
- 3 billions
- Estimated value of Celsius Network last fall when CDPQ invested in the company.