Assets Under Management AUM

Explosive Fraud Allegations as KeyFi Sues Celsius

Staking and investment software firm KeyFi Inc. has filed a lawsuit against beleaguered crypto lending firm Celsius, alleging the firm operated “Ponzi” style and failed to honor a deal of profit sharing “worth millions of dollars”. ”

The lawsuit, filed July 7, alleges Celsius refused to honor a “handshake agreement” in which KeyFi would receive various percentages of profits made on Celsius’ behalf through number staking and DeFi strategies.

The complaint also accuses Celsius of “negligent misrepresentation” of its risk management controls and “fraud in inducement” via misleading information about its business operations, which were deployed to induce KeyFi to do business with Celsius.

The plaintiff is Jason Stone, CEO of KeyFi. He founded the company in January 2020 and has an investor/investment advisor background.

According to court documents, KeyFi served as Celsius’ investment manager between August 2020 and March 2021, during which the duo entered into a memorandum of understanding (MOU) that saw the KeyFi work under a special purpose vehicle owned to Celsius, dubbed Celsius KeyFi.

While a specific figure due to KeyFi isn’t stated in the complaint, it says the sum is worth “millions of dollars” and that the companies had agreed on profit shares ranging from 7.5% to 20. % depending on the investment strategy.

Notably, there is also a lengthy section of the complaint alleging that Celsius was conducting a “Ponzi” style scheme by enticing new depositors with high interest rates as a means of “reimbursing previous depositors and creditors”.

The complaint seeks a jury trial and an award of damages in an “amount to be determined at trial” as well as similar punitive damages, pre- and post-judgment interest, and an accounting of all assets/funds generated through KeyFi business activities.

Other claims of Oxb1

A person claiming to be Stone was revealed to be the leader of the group of pseudonymous DeFi traders behind the Oxb1 address and Twitter account on July 7. The account provided a long rundown of Celsius’ alleged dealings with KeyFi since 2020.

Celsius reportedly entered into a business partnership with KeyFi in mid-2020 which saw the creation of the Oxb1 address for KeyFi to receive, manage and invest deposits from Celsius customers. Assets under management (AUM) totaled nearly $2 billion at the end of their partnership in March 2021, according to the account.

The account also said that Celsius’ risk management team, which monitored Oxb1’s activity, assured KeyFi that “their trading teams adequately hedge any potential impermanent (IL) loss and fluctuations.” token prices related to KeyFi’s investment activities.

However, Oxb1 alleges that this was not true and that they “did not hedge our business, nor hedge the price fluctuations of crypto assets.”

“The company’s entire portfolio had naked market exposure,” he said.

Oxb1 says KeyFi chose to end the partnership as a result and gradually unwind its investment positions over the course of a few months. KeyFi reportedly increased total AUM by $800 million over the course of the partnership.

However, when the company exited its positions, Celsius would have suffered an impermanent loss and blamed Stone.

Related: Celsius has repaid 143 million DAI loans since July 1

Oxb1 said it took legal action and made the case public after a year of trying to privately settle the dispute with Celsius. To date, he claims that KeyFi owes a “significant amount of money” and that Celsius has “refused” to acknowledge its lack of risk management and honor the original profit-sharing terms of the deal.

“Despite our reasonableness, and due to what I believe is motivated by the massive hole in their balance sheet, Celsius has refused to acknowledge the truth or their failings in risk management and accounting. They tried to shift the blame onto me instead.