CFTC investigators conclude ex-Celsius CEO Mashinsky broke US rules: Report

July 6, 2023 Coin Telegraph

If the majority of CFTC commissioners agree with that conclusion, the regulator could file a case in federal court.

Investigators from the Commodity Futures Trading Commission have reportedly determined that bankrupt crypto lender Celsius and its former CEO Alex Mashinsky broke a number of U.S. rules before the company's implosion.

According to a July 5 report from Bloomberg, attorneys from the CFTC's enforcement division found that Celsius misled investors, failed to register with the regulator and that Mashinsky broke a number of regulations, citing people familiar with the matter.

If the majority of the CFTC commissioners agree with the investigators’ findings, the agency could file a case against the collapsed crypto lender in U.S. federal court as early as this month, according to the sources.

The CFTC investigators' findings add to a growing pile of regulatory action against the now-defunct crypto lending platform. The New York Attorney General sued Mashinsky on Jan. 5, alleging that the former CEO misled investors and caused billions of dollars in losses.

I'm suing the former CEO of cryptocurrency platform @CelsiusNetwork for defrauding investors out of billions of dollars.

Alex Mashinsky lied to people about the risks of investing in Celsius, hid its deteriorating financial condition, and failed to register in New York.
— NY AG James (@NewYorkStateAG) January 5, 2023

On June 16 last year, securities regulators from five different U.S. states opened an investigation into Celsius three days after the firm abruptly halt ed user withdrawals on June 13.

The Securities and Exchange Commission (SEC) along with federal prosecutors from Manhattan also launched a series of probes into the firm, according to May court filings. Bloomberg notes that both the SEC and representatives from the U.S. Attorney's Office for the Southern District of New York have declined to comment on the status of the investigations.

Cointelegraph contacted the CFTC and Alex Mashinsky but is yet to receive a response.

Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?

Bankrupt Crypto Lender Celsius Seeks to Reopen Withdrawals for Specific Customers

September 2, 2022 Bitcoin.com

Bombshell allegations of fraud as KeyFi takes Celsius to court

July 8, 2022 Coin Telegraph

Celsius

KeyFi Inc.’s complaint alleges that Celsius failed to honor a multi-million dollar profit sharing agreement after deploying numerous successful staking and DeFi strategies for the firm.

Staking software and investment firm KeyFi Inc. has filed a complaint against beleaguered crypto-lending firm Celsius, alleging the company had been operating in a “Ponzi” style fashion and that it failed to honor a profit-sharing agreement “worth millions of dollars.”

The complaint, filed on July 7, alleges that Celsius has refused to honor a “handshake agreement” in which KeyFi would receive various percentages on the profits it made on Celsius behalf via a number staking and DeFi strategies.

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

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

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

While a specific figure owed to KeyFi is not outlined in the complaint, it states 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 running a “Ponzi” style operation by luring in new depositors with high interest rates as a way to “repay earlier depositors and creditors.”

Celsius operated as a Ponzi scheme. pic.twitter.com/pGC8vrH3a0
— Dylan LeClair (@DylanLeClair_) July 7, 2022

The complaint seeks a trial by jury, and an award of damages in “an amount to be determined at trial” along with punitive damages in the same vein, pre and post-judgment interest, and an accounting of all assets/funds generated via KeyFi trading activities.

Further claims from Oxb1

A person claiming to be Stone revealed himself 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.

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. I have brought legal action against Celsius to settle this issue once and for all.
— 0xb1 (@0x_b1) July 7, 2022

Celsius was said to have struck a business partnership with KeyFi in mid-2020 which saw the creation of the Oxb1 address for KeyFi to receive, manage and invest customer deposits from Celsius. The assets under management (AUM) totaled almost $2 billion by the end of their partnership in March 2021, according to the account.

The account also stated that Celsius’ risk management team, who monitored the activity of Oxb1, assured KeyFi that “their trading teams were adequately hedging any potential” impermanent loss (IL) and fluctuations in token prices relating to KeyFi investment activities.

However, Oxb1 alleges that this was not true and they “had not been hedging our activities, nor had they been hedging the fluctuations in crypto asset prices.”

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

Oxb1 claims that KeyFi opted to terminate the partnership as a result, and gradually unwind its investment positions over the course of a few months. KeyFi was said to have increased total AUM by $800 million during the partnership.

However, when the firm exited its positions, Celsius allegedly suffered impermanent loss and blamed Stone.

Oxb1 stated that he filed the lawsuit and took the matter public after a year of trying to privately settle the dispute with Celsius. To date, he claims KeyFi is owed a “significant amount of money,” and that Celsius has “refused” to acknowledge its lack of risk management and honor the initial profit sharing terms of the deal.

“Despite our reasonableness, and due to what I believe was motivated by the massive hole in their balance sheet, Celsius has refused to acknowledge the truth or their failures in risk management and accounting. They have tried to deflect blame to me instead.”

Celsius lawsuit