Founder of Celsius Must Face New York Fraud Lawsuit

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Last Updated on August 6, 2023 by Bitfinsider

A Manhattan state court judge ordered on Friday that Alex Mashinsky, the founder and former CEO of the now-bankrupt cryptocurrency lender Celsius Network, must face a civil fraud action filed by New York Attorney General Letitia James.

According to Justice Margaret Chan, Mashinsky deceived investors by advertising Celsius as a safe alternative to banks while concealing its hazards, which included hundreds of millions of dollars in investment losses.

Chan also stated that James might bring some claims under the Martin Act, a robust state securities statute, and that the “earned interest accounts” offered by Celsius qualified as securities under state law.

The case “supports a reasonable inference that the harm suffered by investors flowed, at least in part, from Mashinsky’s alleged misrepresentations made in New York concerning Celsius’ overall financial health and investment safety,” Chan concluded in a 25-page judgement.

Separately, Mashinsky has pled not guilty to criminal fraud allegations brought by the US Department of Justice in connection with Celsius’ demise.

He is also being sued in civil court by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Trade Commission.

Lawyers for Mashinsky in the New York civil case did not reply to calls for comment right away.

The ruling, according to James, “should serve as another reminder to crypto companies that we will use the full extent of the law against those who defraud investors.”

Cryptocurrency lenders like Hoboken, New Jersey-based Celsius expanded quickly as digital asset prices rose during the COVID-19 pandemic.

The lenders promised depositors rapid loan access and high interest rates, then lent tokens to institutional investors in the hope of profiting from the difference.

According to regulators and court records, Celsius was created in 2017 and paid 17% interest on some deposits, but it had a $1.19 billion balance sheet shortfall when it filed Chapter 11 protection in July 2022.

Celsius declared bankruptcy one month after freezing withdrawals and transfers for its 1.7 million customers, claiming “extreme” market conditions.

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