A former employee at bankrupt crypto-lender Celsius has sued the company, calling it a 'Ponzi scheme'

• A new lawsuit alleges that embattled crypto platform Celsius is a Ponzi scheme.
• Jason Stone, the CEO of a firm Celsius acquired, says it failed to hedge risk and manipulated the market.

A former investment manager at Celsius is suing the bankrupt crypto lending platform, alleging it committed fraud and calling it a Ponzi scheme.

Jason Stone, the CEO and co-founder of the Defi firm KeyFi, later Celsius acquired in 2020, filed the complaint in New York on Thursday. His team was tasked with receiving "hundreds of millions of dollars of customer deposits" from Celsius to invest — but the acquisition came with no formal written agreement, according to the lawsuit.

Stone accuses Celsius of lacking basic security and risk management systems in place, and says the firm now owes money to his company and hundreds of thousands of customers.

Celsius did not immediately respond to a request for comment.

Celsius offered users interest in exchange for their crypto holdings that it then lent out to others. According to the lawsuit, it also used those customers' holdings to artificially raise the price of its own coin, the "Celsius token" or CEL, and failed to account for certain payments that it owed to its users, resulting in a $200 million hole.

The platform viewed those funds as its property, the lawsuit alleges, as is displayed in the terms of service: "Celsius does not hold any Digital Assets on your behalf" but instead are "owned, held and/or controlled by Celsius."

The company then lured in new crypto holders with higher interest rates to try to repay initial depositors and creditors, per the lawsuit.

"The recent revelation that Celsius does not have the assets on hand to meet its withdrawal obligations shows that Defendants were, in fact, operating a Ponzi-scheme," reads the complaint. Crypto critics have long compared the market to Ponzi schemes, which rely on new investments to repay early ones, all while being a fraud.

Stone — who left Celsius in March 2021 — also took to Twitter to describe the timeline of events, starting in early 2021 when he and his team discovered Celsius had lied about properly hedging potential losses that KeyFi may have seen, he said.

Celsius also hadn't been hedging against the fluctuations crypto markets are known for, Stone said. When Stone told Celsius it wished to cease partnership and detached its Defi tools, he said the lending platform saw "impermanent loss," which it blamed on Stone.

"Given the public speculation about the company's solvency, and my observation of Celsius' loose relationship with the truth, I feel it is only prudent to finally set the record straight," Stone wrote on Twitter. "I have brought legal action against Celsius to settle this issue once and for all."

The news comes after Celsius was one of a handful of companies that have stopped allowing customers to withdraw their money, amid a huge selloff in cryptocurrencies. On July 13, Celsius filed for bankruptcy protection.

Celsius customers previously told Insider they have no idea what will happen to their money that's now been trapped on the platform for nearly a month.

In June, FTX was seeking to buy Celsius but abandoned those plans when it noticed a $2 billion hole in its balance sheet, The Block reported. FTX and its founder, billionaire Sam Bankman-Fried, have been deploying cash to floundering firms as the crypto winter rages on.