- Alex Mashinsky presented Celsius as a safe alternative to banks, hid risks
- He has also been charged by the US Department of Justice with criminal fraud
Alex Mashinsky, founder and ex-CEO of bankrupt cryptocurrency lender Celsius Network, has been accused of civil fraud by New York Attorney General Letitia James. The lawsuit is supported through a Friday ruling by a Manhattan judge, Reuters reported on August 6.
He defrauded investors by concealing Celsius’ risks
According to judge Margaret Chan, James’ allegations thatMashinsky cheated investorsby presenting Celsius as a safe alternative to banks and hiding the risks are justified. Customers of Celsius lost hundreds of millions of dollars.
The judge also finds that James can use the Martin Act, a state securities law, to plead her case. Allegedly, the earned interest offered by the lender involved securities under state law.
James’ lawsuit leads one to reasonably infer that Mashinsky’s purported misrepresentations regarding his platform’s safety and its overall financial stability were among the reasons investors suffered harm, the judge wrote in her lengthy decision.
Fraud charges from 4 regulators
Mashinsky has also been charged by the US Department of Justice with criminal fraud and pleaded not guilty. The charges are connected to Celsius’ bankruptcy. In addition, he faces related civil lawsuits by the US Federal Trade Commission, the US Commodity Futures Trading Commission, and the US Securities and Exchange Commission.
In a statement, New York Attorney General Letitia James said the judge’s decision should remind crypto companies that authorities would avail of the full extent of the law to punish scammers.
Easy loan access, high interest for depositors
Demand for crypto loans surged during the pandemic. Lending platforms promised borrowers easy access to loans and assured depositors would enjoy high interest rates. They lent crypto to institutional investors and profited from the difference.
$1.19B deficit at bankruptcy filing
Celsius offered as much as 17 percent interest on some deposits. However, the lender filed for bankruptcy in 2022, at which time its balance sheet deficit amounted to $1.19 billion. A month before the filing, the platform suspended all transactions, citing “extreme market conditions.” This affected 1.7 million people, which is how many customers Celsius has accumulated since its founding in 2017.
