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New York attorney general files fraud suit against Celsius Network and its founder Alex

By Lukas I. Alpert

The suit claims Mashinsky defrauded investors out of billions by lying about Celsius’ “deteriorating financial condition.”

New York’s attorney general has filed a lawsuit against bankrupt crypto lender Celsius Network and its founder Alex Mashinsky, accusing them of defrauding investors out of billions of dollars by lying about the perilous state the company was in before it collapsed.

The suit, filed Thursday in New York state court in Manhattan, alleges that Mashinsky convinced hundreds of thousands of investors to leave their deposits on the Celsius platform, telling them their money was safe, even as the company was losing hundreds of millions of dollars in risky bets.

“Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said New York Attorney General Leticia James. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”

The suit seeks to ban Mashinsky from ever doing business in New York again and to pay back any money he gained through the alleged fraud.

Messages left with representatives for Celsius and a lawyer for Mashinsky weren’t immediately returned.

Founded and run by Mashinsky, Celsius became a prominent player in the fast-developing crypto lending space by offering eye-popping interest rates as high as 18% to lure in depositors. In all, the company said it had amassed deposits of over $20 billion, which it used to make Defi investments and loans.

The model was met by skepticism by some, and questions had long swirled around the company’s viability. In late 2020, regulators in several states sent Celsius cease and desist notices demanding it stop selling its primary investment product because it was unregistered and in violation of state laws.

In mid-June, as Bitcoin and other cryptocurrencies plunged in value, Celsius froze all withdrawals, swaps and transfers by depositors, citing “extreme market conditions.” The company filed for Chapter 11 bankruptcy in July.

Shortly before filing for bankruptcy, Celsius’ former investment manager filed a lawsuit against the company claiming it had been run as a Ponzi scheme.

Celsius’ collapse triggered a cascade of similar failures among crypto outfits that culminated in the massive implosion of the crypto exchange FTX late last year. FTX’s founder, Sam Bankman-Fried was hit with criminal fraud charges in December. He had pleaded not guilty.

James said that as Celsius’ public face, Mashinsky routinely made “false and deceptive statements” about the viability of Celsius’s investments. the number of customers it had and the type of investment strategies it used, in order to recruit new investors.

Instead of making safe and low-risk investments, like Mashinsky promised, Celsius engaged in a number of speculative and high-risk bets that collapsed as crypto prices fell last year, the suit alleged.

While James said Mashinsky “repeatedly asserted that Celsius was safer than a bank,” she noted that banks are highly regulated, while crypto lenders and exchanges like Celsius are not.

“The collapse of Celsius has left many individuals in financial ruin,” James said, citing the examples of one New York resident who mortgaged two properties to invest with Celsius and a disabled veteran who lost his investment of $36,000, which he had saved up over a decade. to save up.

She said another disabled New Yorker, who depended upon government assistance to supplement his $8 per hour income, lost his entire investment.

-Lukas I. Alpert


(END) Dow Jones Newswires

01-05-23 1103ET

Copyright (c) 2023 Dow Jones & Company, Inc.

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