Prosecutors sue former Celsius CEO Alex Mashinsky for fraud

New York Attorney General Letitia James filed a lawsuit against the head and co-founder of the cryptocurrency lending service Celsius Network, Alex Mashinsky.

The New York Attorney General’s Office accuses Mashinsky of defrauding investors, including 26,000 residents of the state. The former head of a crypto startup deliberately misled investors by misrepresenting the financial condition of the platform and violating regulatory requirements.

The prosecutor claims that Mashinsky spoke at conferences, gave interviews and wrote on social networks in order to spread deliberately false information – he lied to people about the risks of investing in Celsius, concealed his deteriorating financial condition and did not pass the necessary registration to work in New York.

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Due to the fact that Celsius was not subject to regulatory requirements, the company’s clients could not expect the protection of their funds, as clients of traditional financial institutions.

Celsius is a centralized crypto lending platform founded by Mashinsky, Nuke Goldstein and Daniel Leon. Its main services were cryptocurrency deposits and loans. The company positioned itself as an alternative to traditional banks and provided financial services related to cryptocurrencies.

The platform was officially launched in 2017, and a year later the project team released its own token, CEL. During its work, the company has attracted more than $860 million in investments. In December 2021, the company managed assets in the amount of $24 billion, however, but in May 2022 this figure dropped to $12 billion.

The market downturn that began in the spring was also reflected in Celsius – on June 13, 2022, the company suddenly announced the suspension of withdrawals. A month later, she initiated Chapter 11 bankruptcy proceedings in the District Court for the Southern District of New York. The company promised to restore activity on the platform and return all funds to customers, but few people believed her.

The platform presented a plan to reorganize the business, promising to use the income from the work of the mining “daughter” to pay off the claims of creditors. Celsius’ liabilities exceed the company’s assets by $2.85 billion.

On September 1, it became known that a class action had been filed with the US Bankruptcy Court. A group of 64 investors holding $22.5 million worth of cryptocurrencies in the Celsius custodial service are represented by the law firm Togut, Segal & Segal. In a statement, the plaintiffs note that Celsius has the necessary volume and types of cryptocurrencies to return funds, but it does not. According to the Celsius terms of use, the right to any digital assets in the Celsius wallet always belongs to customers and is not transferred to Celsius, these assets are separate from other products of the platform.

Regulators have also filed charges against Celsius amid bankruptcy proceedings. On Sept. 7, the Vermont Department of Financial Regulation said both the lending platform and Mashinsky personally misled state regulators about the firm’s financial health and compliance with securities laws.

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