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The Right Place to Buy, Earn, Exchange and Borrow against Your Crypto.

Celsius hits back at Jason Stone claiming he used client funds to buy CryptoPunks while losing 30,000 ETH in a bad DeFi trade.

Cover art/illustration via CryptoSlate

Jason Stone of KeyFi filed a lawsuit against Celsius, claiming that Celsius owed KeyFi “millions of dollars,” and now Celsius returned fire by suing KeyFi and Jason Stone for the mismanagement and theft of client funds.

The complaint describes KeyFi and Stone as

“extraordinarily inept at the investment strategies they were undertaking.”

The legal complaint claims that Stone was given access to the private keys of a Celsius-owned wallet, referred to as “0xb1.” Said wallet existed to allow Stone to manage Celsius’ DeFi strategy, according to terms agreed between both parties.

However, Celsius alleges that Stone misused the funds to purchase CryptoPunk, Bullrun Babes, and hundreds of other NFTs in February 2021 for a total of 1,070 ETH. Stone later sold four of the CryptoPunks for 1,071 ETH before transferring the ETH to Tornado Cash. Many of the NFTs purchased by Stone were also allegedly moved from Celsius-owned wallets to a wallet fully controlled by Stone.

Celsius claims that Stone had no authorization to purchase NFTs with Celsius funds. The complaint also states that Stone may have done so as he was “aware that transfers of NFTs in and out of the Wallets would not be visible to Celsius through the operative dashboards.”

The lawsuit indicates that Stone used a mixture of NFT purchases and Tornado Cash to siphon funds from Celsius wallets without raising internal alarms.

Kyle Roche, a founding partner at Roche Freedman who represent Stone, replied by saying that the NFT purchases were “authorized by Celsius’s CEO Alexander Mashinsky.”

As alleged by KeyFi in the complaint it filed last month, the compensation that KeyFi received (including in the form of NFTs) was expressly authorized by Celsius’s CEO Alexander Mashinsky.

— Kyle Roche (@KyleWRoche) August 23, 2022

After Celsius broke ties with Stone, it withdrew funds from the 0xb1 wallet as Stone still had access to the private keys. However, the wallet received a $1.4 million DAI airdrop in September 2021, allegedly stolen by Stone and laundered through Tornado Cash along with an additional 320 ETH.

Alongside the allegations of theft, Celsius claims that Stone lost over $50 million in Celsius funds in a poorly executed DeFi trade “after a sharp fall in the price of ETH.” The position was allegedly liquidated on February 23, 2021, a day when Ethereum dropped from 24% to $1,355 before recovering to $1,576 to close the day down to just 10%.

Among other complaints, Celsius also alleges that Stone Invested in the NFT platform, Nifty, with Celsius-owned funds. Celsius claims it should be given its Nifty share as part of the settlement.

While the complaint does not explicitly state that the funds allegedly stolen by Stone belonged to customers, it does note that Celsius was “laser-focused on recovering the balance for the benefit of its customers.”

The statement indicates that it was in its customers’ interest to recover the funds from 0xb1. While the information may refer to ensuring Celsius had sufficient liquidity to operate, the funds likely belonged to Celsius’ customers.

Celsius appears to be looking to recover any and all funds owed to it as it also filed a suit against Prime Trust for roughly $17 million on Tuesday.

Also known as Akiba, Liam is a journalist and editor of Blocklight at CryptoSlate. He believes that decentralized ledger technology has the potential to make widespread positive change. He predicts the next 10 years will bring in a dawn of a new age of technological innovation.

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Ethereum is the community-run technology powering the cryptocurrency ether (ETH) and thousands of decentralized applications. Learn more

Celsius Network is a P2P decentralized lending & borrowing platform. Learn More

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