Celsius, which quite frankly is not having a pleasant go of it right now, is getting sued by a former business partner who alleges the company a) didn’t pay him and b) engaged in some frankly very poor practices (if the claims are accurate).

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KeyFi Inc., an investment manager entity, is suing crypto lender Celsius for not honoring “contractual obligations,” alleging the beleaguered company has failed to pay it “millions of dollars.”

The company and its founder, Jason Stone, are taking no prisoners: Stone alleges that “Celsius is, in fact, balance sheet insolvent.”

And looking through the complaint, all I can say is, “phew.”

Celsius halted withdrawals last month, becoming the first of several companies to do so amid this rapidly escalating bear market cycle. If the allegations as stated are true, it means that Celsius is yet another company that will not be able to make its customers whole without significant assistance. Still, there seems to be more to the story than just these allegations.

Jason Stone, KeyFi’s proprietor, basically claimed that Celsius cannot meet all of its financial obligations, took out a $1 billion loan from stablecoin issuer Tether and is using new customer funds to pay back old customers.

It’s this last claim that’s particularly damning.

The allegations in short:

The suit was filed by the Roche Freedman law firm, and again, some pretty explosive allegations. The suit does note Celsius’ halting of withdrawals from last month as one concerning issue.

“On June 12, 2022, these issues – which Plaintiff identified in March 2021 – have now caused harm not only to Plaintiff, but the hundreds of thousands of people who use Defendants’ platform, as Defendants are now refusing to honor requests by its customers to withdraw the assets they deposited and entrusted with Defendants,” the suit claims.

As Celsius lost funding, the company allegedly went to great lengths to continue paying off existing customers, including borrowing $1 billion from Tether.

“Faced with a liquidity crisis, Celsius began to offer double-digit interest rates in order to lure new depositors, whose funds were used to repay earlier depositors and creditors. Thus, while Celsius continued to market itself as a transparent and well capitalized business, in reality, it had become a Ponzi scheme,” the suit alleges.

Even as this suit unfolds, it’s worth noting that Celsius has spent the last few weeks paying off loans to various decentralized finance (DeFi) applications, including $140 million to Maker, giving it access to $440 million in collateral; Aave, giving it $950 million; and others.

Other questions remain unanswered. One detail that I didn’t see was why Stone waited until July 2022 to file this lawsuit if he left the company in March 2021. Hopes that he would still be paid?

The Federal Deposit Insurance Corporation (FDIC) is a regulator in the U.S. tasked with ensuring the soundness and safety of banks and savings associations. If a bank fails, the FDIC is the regulator that will insure customer deposits, up to $250,000.

Note that this is if a bank or savings association fails. If a bank’s client fails, and that client happens to store customer funds on the bank, that does not mean that the customer funds are necessarily protected. In fact, they’re not. Whatever’s in the bank account is it.

So Voyager Digital is probably in trouble, huh. The company, which filed for bankruptcy protection, is facing an FDIC probe of some sort amid allegations it misled would-be customers about just how insured their funds were (spoiler: The funds were not protected.)

On Monday, Voyager published a blog post clarifying that what the FDIC insurance means is “you are covered in the event of Metropolitan Commercial Bank’s failure, up to a maximum of $250,000 per customer.

Needless to say, MCB has so far shown no cause for concern that it’s about to collapse.

Meanwhile, Voyager itself detailed what it has left in terms of funds:

3AC is dealing with its own bankruptcy lawsuit, so who knows when that $650 million may be available again.

So am I, still waiting

For M. Barr to stop remaining

Can’t find a, good reason

For this vote’s incompletion.

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

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See ya’ll next week!