Breaking: Celsius Slapped With Lawsuit Calling It A Ponzi Scheme

Beleaguered crypto lender Celsius was sued by a former asset manager on Thursday, who alleged that the firm was an elaborate “Ponzi Scheme.”

In a court document filed in the New York state court in Manhattan, the lawsuit alleges that Celsius used customer deposits to inflate the price of its own CEL token, and manipulate broader crypto markets.

But because it was unable to effectively curb risk, the lender now faces a liquidity crunch, and has been forced to freeze withdrawals.

The lawsuit was filed by KeyFi, which had managed assets for Celsius until March last year. The lawsuit also alleges that the lender did not pay KeyFi for its services.

KeyFi raises damning allegations against Celsius

Jason Stone- a key plaintiff in the case, said that at one point, KeyFi had managed nearly $2 billion in assets for Celsius. It was during this period that the asset manager became aware of the fact that Celsius had no hedging against risks.

“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,” the lawsuit alleges

Stone said in a Twitter thread that a consistent lack of risk management by Celsius has now resulted in the lender’s liquidity crunch.

Recent reports suggest Celsius has hired restructuring lawyers, and is now in the process of negotiating a potential bankruptcy.

Prepare for a potential Bitcoin dump?

Celsius is currently in the process of clearing its dues to several lenders. The platform recently paid off its debt to Maker DAO.

But shortly after, it mobilized about $500 million worth of Wrapped Bitcoin to FTX. This could indicate that Celsius is preparing to dump the token to increase its liquidity.

While such a scenario could help the lender stave off a bankruptcy, it would also result in a negative impact on Bitcoin prices.

But it remains unclear whether the lender will be able to repay its customers in full.