Bankrupt crypto lender Celsius has accused StakeHound of failing to hand back $150 million worth of various tokens which it had entrusted to the liquid staking platform.
In a complaint filed as part of Celsius’s ongoing bankruptcy proceedings, lawyers also alleged that StakeHound had violated bankruptcy rules by commencing an arbitration proceeding against the business in Switzerland.
Leveling claims of breach of contract and “willful misconduct” against StakeHound, the complaint says the firm should be required to turn over Celsius’ property, as well as pay compensatory damages and attorneys’ fees.
At the heart of the case are $120 million worth of Ethereum (ETH), $30 million in Polygon (MATIC), and Polkadot (DOT) tokens worth $300,000, based on recent prices.
Stakehound, which discontinued its staking activities in June 2021, offered liquidity to users who wanted to “stake” crypto–a process whereby tokens are pledged to the network and earn rewards in return–by wrapping assets into “staked tokens” which represent the underlying asset on a 1:1 basis.
While their assets were locked up, customers received so-called “stTokens,” which they could present when they wanted to claim their tokens back.
But Celsius claims that StakeHound refused to return its assets in exchange for the stTokens.
According to the filing, StakeHound blamed the loss of the keys associated with 35,000 of Celsius’s ETH tokens for its failure to return the assets.
The incident was made public in June 2021, with StakeHound blaming the supposed negligence of custody firm Fireblocks.
In action taken in a Swiss court in April this year, StakeHound argued that it had “no obligation” whatsoever to exchange Ethereum for the stTokens it had issued to Celsius.
Launching that arbitration process violates Section 362 of the United States Bankruptcy Code, according to Celsius’ lawyers. Known as the “automatic stay,” this provision prevents creditors and other entities from pursuing debts or taking legal action against a company that has filed for bankruptcy.
Celsius was, its lawyers claim, by far StakeHound’s largest customer. Its business is thought to have accounted for more than 90% of the total tokens managed by the platform.
The Ethereum in question was locked up in anticipation of the blockchain’s long-awaited upgrade, which took place in April this year, unlocking a bumper pool of staked ETH.
However, StakeHound has allegedly refused to confirm whether Celsius’s assets became unlocked once the upgrade was completed.