New York attorney general Letitia James has dished out a civil fraud lawsuit to Celsius Network founder and former chief Alex Mashinsky, accusing him of “using false and misleading representations” to defraud hundreds of thousands of investors.
In a complaint filed before the New York Supreme Court, James said Mashinsky was promoting his crypto bank Celsius as a safe alternative to banks, “while concealing that Celsius was actually engaged in risky investment strategies”.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said Attorney General James.
Celsius Network promised investors yields of up to 17%, but following the 2022 crypto market rout, these promises became unsustainable.
Amid a bank run on Celsius’ assets, Mashinsky ordered a “temporary” freeze on all customer funds worth up to US$4.2bn on June 13, 2022.
One month later, Celsius filed for Chapter 11 bankruptcy protection. As unsecured creditors, customers’ funds are now locked up in the bankruptcy estate indefinitely.
I'm suing the former CEO of cryptocurrency platform @CelsiusNetwork for defrauding investors out of billions of dollars.
Alex Mashinsky lied to people about the risks of investing in Celsius, hid its deteriorating financial condition, and failed to register in New York.
— NY AG James (@NewYorkStateAG) January 5, 2023
In her complaint, James detailed numerous accounts of financial ruin due to Celsius’ collapse, including a disabled veteran who lost his US$36,000 investment, and another disabled citizen, who depended upon government assistance to supplement his small income, who also lost his entire investment.
Mashinsky stepped down as chief executive in September 2022 to hand the reins to a restructuring officer.
“I regret that my continued role as CEO has become an increasing distraction, and I am very sorry about the difficult financial circumstances members of our community are facing,” Mashinsky said at the time.
He has since kept a low profile.
Being a civil lawsuit, Mashinsky does not face any time behind bars, but may be banned from certain business activities in the US and could face hefty fines.