New York sues Mashinsky, founder of Celsius Network, for defrauding crypto investors

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NEW YORK, Jan 5 (Reuters) – New York’s attorney general sued Celsius Network founder Alex Mashinsky on Thursday, claiming he defrauded investors of billions of dollars in digital currency by covering up the failing health of his platform now bankrupt cryptocurrency lender.

Mashinsky fraudulently promoted Celsius as a safe alternative to banks, while hiding that he was losing hundreds of millions of dollars in risky investments, according to a complaint filed by Attorney General Letitia James.

The civil lawsuit filed in New York state court in Manhattan seeks to bar Mashinsky from doing business in New York and to award him damages, restitution and reimbursement.

He accuses her of violating the state’s Martin Act, which gives James broad authority to prosecute securities fraud cases, and other laws.

“Alex Mashinsky promised to lead investors to financial freedom, but led them down a path to financial ruin,” James said in a statement. “Making false and unsubstantiated promises and misleading investors is illegal.”

Mashinsky, his attorney, and attorneys for Celsius did not immediately respond to requests for comment.

Celsius, based in Hoboken, New Jersey, filed for Chapter 11 protection from creditors on July 13, posting a $1.19 billion deficit on its balance sheet.

The filing came a month after Celsius froze withdrawals and transfers for its 1.7 million customers, citing “extreme” market conditions.

James said more than 26,000 New Yorkers were among the victims of fraud.

She said many of the victims were ordinary investors, such as a father of three who lost his $375,000 in savings and a disabled veteran who lost the $36,000 he saved for nearly a year. decade.

IGNORE THE ‘FUD’

Cryptocurrency lenders have gained popularity during the COVID-19 pandemic by promising high interest rates and easy access to loans for depositors. They then lent tokens to institutional investors, hoping to profit from the difference.

But the business model has often proven unsustainable in 2022 after a sell-off in cryptocurrency markets, including the collapse of terraUSD and luna tokens.

Born in Ukraine and later emigrated to Israel with his family, Mashinsky established several 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 in digital assets early last year.

But as it struggled to pay promised returns on investors’ deposits, Celsius moved into riskier investments, while Mashinsky continued to ensure the platform was safe.

The lawsuit said that in the two weeks before the withdrawal freeze, Mashinsky was still rejecting criticism that Celsius was overbroad, urging investors to “ignore FUD,” short for “fear, uncertainty and doubt.”

James said Mashinsky’s fraud ran from 2018 until June 2022, when deposits were frozen.

Mashinsky resigned as chief executive of Celsius in September and said at the time he had pledged to help return deposits to investors.

Reporting by Jonathan Stempel in New York; Additional reporting by Luc Cohen; Editing by Noeleen Walder, Chizu Nomiyama, Bill Berkrot and David Gregorio

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