The New York Attorney General Letitia James filed charges against Celsius Network founder Alex Mashinsky, alleging that he defrauded investors out of billions of dollars in digital currency by hiding the weak health of his now-bankrupt cryptocurrency lending platform. Mashinsky continued to promote Celsius as a safe alternative to banks and paid up to 17% interest on deposits while hiding hundreds of millions of dollars in losses in risky investments, according to the lawsuit.
The civil suit alleges that Celsius Network founder and CEO Alex Mashinsky:
- repeatedly made false and misleading statements about Celsius’s safety to encourage investors to deposit billions of dollars in digital assets onto the platform;
- misrepresented and concealed Celsius’s worsening financial condition;
- failed to register as a salesperson for Celsius and as a securities and commodities dealer.
The lawsuit seeks to ban Alex Mashinsky from doing business in New York and require him to pay damages, restitution, and disgorgement.
Alex Mashinsky promised investors he would lead them to financial freedom but has led them to financial ruin. Making false and unsubstantiated promises and misleading investors is illegal.New York Attorney General Letitia James
The lack of a comprehensive federal framework for regulating cryptocurrencies gives James the freedom to take an “aggressive” role in enforcement. Celsius filed for Chapter 11 bankruptcy protection last July 13, showing a $1.19 billion deficit on its balance sheet. A court filing shows that Celsius ended November with $9 billion of liabilities, including more than $4.3 billion owed to customers.
James said Mashinsky‘s fraud ran from 2018 to June 2022, when deposits were frozen, with more than 26,000 New Yorkers among his victims. Many victims were ordinary investors, like a father of three who lost his $375,000 life savings and a disabled veteran who lost the $36,000 he spent nearly a decade saving, she said. Mashinsky started multiple businesses before founding Celsius in 2017, becoming its chief executive and public face. James said his promotional efforts through social media, interviews and cryptocurrency conferences helped the company amass $20 billion of digital assets by early last year.
But as it struggled to pay the promised yields on investor deposits, Celsius allegedly moved into riskier investments. The lawsuit said that in the two weeks before the withdrawal freeze, Mashinsky was still dismissing criticism that Celsius was overextended, urging investors to “ignore the FUD,” short for “fear, uncertainty and doubt.” In September, U.S. Bankruptcy Judge Martin Glenn appointed an examiner to investigate whether Celsius was mismanaged after a federal trustee said an appointment could help “neutralize the inherent distrust” in the company among creditors and customers. Mashinsky resigned as Celsius chief executive in September, saying he was committed to helping return deposits to investors at the time.