Crypto lender Celsius files lawsuit in attempt to recover funds

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 recoup funds.

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

Driving the news: The company filed two lawsuits on Tuesday. One fired back at his former chief investment officer, Jason Stone, suing him and his company KeyFi for “millions” in allegedly stolen coins.

• The second lawsuit, 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 in June 2021.

Catch up quickly: Since Celsius started bankruptcy proceedings in July, customers have written more than 250 letters to the judge explaining their plight by having their savings locked up on the lender’s platform, offering solutions and accusing Celsius of fraud.

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

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

• A sensor’s job is to find out how things fell apart. (The Lehman examiner’s 2,200-page report detailed the investment manager’s liquidation).
• Celsius via one of its social media accounts opposes this, citing the costs of the exam.

Details: Celsius’ counterclaim against Stone alleges “incompetence, deception and conversion” as well as “millions stolen” from a number of the crypto lender’s wallets which were then used to purchase hundreds of NFTs and/or also, veiled via the now-sanctioned Tornado Money.

The other side: Recall Stone’s suit alleged that 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 claim: “Stone knew he was not authorized to convert Celsius coins to NFTs. Naturally, 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 has invested in platforms or ventures using Celsius’ funds also rightfully belong to Celsius, the suit claims.

The case against Prime Trust claims the custodian had $17 million worth of coins. Assets hanging in the balance: 398 bitcoin, 196,268 Celsius (CEL) tokens, 3,740 ether and 2,261,448 USDC stablecoins, according to Celsius’ color.

• Prime Trust and Celsius entered into a partnership in March 2020, and the funds Celsius claims Prime owes are tied to accounts held by clients in New York and Washington as a custodial service.

Jason Stone did not respond to questions sent via social media; neither Prime Trust nor Celsius responded to email requests.

What will be next: Celsius’ next hearing is on September 1 at 10 A.M.