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New York Attorney General Letitia James has sued the founder and former CEO of collapsed crypto bank Celsius, Alex Mashinsky.
According to the AG, Mashinsky misrepresented the financial condition of Celsius to investors, causing them significant losses.
New York AG Sues Mashinsky
Letitia James, Attorney General of New York, has filed a lawsuit against the founder and former CEO of Celsius, Alex Mashinsky. James alleged that Mashinsky had deliberately made several “false and misleading” statements, leading investors, including 26,000 New Yorkers, to lose billions. The lawsuit also alleged that Mashinsky lied to investors, hid the true extent of Celsius’s financial problems, and also failed to meet state law registration requirements. James released a statement on Twitter, stating,
“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.”
The Attorney General further added,
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin. The law is clear that making false and unsubstantiated promises and misleading investors is illegal. Today, we are taking action on behalf of thousands of New Yorkers who were defrauded by Mr. Mashinsky to recoup their losses.”
The action comes against the backdrop of similar suits against crypto lender Nexo.
Pushing A False Narrative
James also accused Mashinsky of pushing a false narrative through various appearances at conferences, in interviews, and on social media. She further added that customers of Celsius did not have access to the same protections as those available to customers of traditional financial institutions because Celsius was not subject to regulatory norms and requirements. The lawsuit aims to ban Mashinsky from doing any business in New York in the future and pay damages, restitution, and disgorgement to Celsius users impacted by the collapse.
“Mashinsky repeatedly claimed that Celsius made safe, low-risk investments and only lent assets to credible and reputable entities. However, investors’ assets were routinely exposed to high-risk counterparties and strategies, many of which resulted in losses that Mashinsky concealed from investors.”
The lawsuit stated that Mashinsky, on several occasions, made statements contrary to the company’s risk management hygiene. It cited a 13th April interview, where Mashinsky stated that Celsius did not offer non-collateralized loans. However, it increased its exposure to uncollateralized loans between 2020 and 2022, offering the riskier loans to counterparties, including Three Arrows Capital and Alameda Research.
The Celsius Collapse
Celsius froze customer withdrawals at the beginning of June as its business model began unraveling. The company then filed for bankruptcy protection at the beginning of July. This left a sizable number of users with assets locked on Celsius, along with a significant gap in the company’s balance sheet. In September, Mashinsky resigned as the CEO of the company, stating his role was an “increasing distraction” with users facing incredibly difficult financial circumstances.
At the time of filing for bankruptcy, Celsius had 600,000 accounts in its Earn program, which had a market value of $4.2 billion as of 10th July 2022. This figure also included $23 million in pegged stablecoins. Furthermore, Celsius reported a $1.2 billion gap between assets and liabilities.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.