Ex-CEO of Bankrupt Crypto Lender Celsius Sued for Fraud by New York AG

New York Attorney sues the former CEO of Celsius after the lender’s high-profile collapse as a pillar of the crypto industry.
Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support.

The cryptocurrency lending platform, Celsius and its ex-CEO have both followed a downward path to financial ruin. On January 5, Alex Mashinsky, the founder of failed Celsius Network has been sued by New York Attorney General Letitia James. The richling allegedly made false and misleading statements regarding the state of the company, persuading investors to deposit billions in crypto.

To add on that, Alex promised the 26,000 investors hefty returns and the safety of assets acting as a modern-day Robinhood. He promised customers up to 17 % via its earn program. Alex also failed to register as an official salesperson for Celsius.

Terra, and its token Luna, offered similar yields on customer deposits. Those tokens collapsed after huge customer withdrawals forced Terra’s operators to liquidate all of the assets being used to support their currencies.

The Attorney General added that if the suit succeeds, he seeks to ban Alex Mashinsky from running any other business in the state and will be forced to pay back investors. Benjamin Lee, Alex’s attorney said that his client denies all allegations and looks forward to “vigorously defending himself in court”.

The embattled 57-year-old founder removed $ 10 billion from Celsius’s accounts several weeks before the lender succumbed, halting customer withdrawals, and voluntarily filing for chapter 11 bankruptcy in June forcing the price of Bitcoin and other cryptocurrencies to plummet.

Celsius said it had a $1.2 billion hole in its balance sheet, further revealing that it held $4.3 billion of assets, $5.5 billion of liabilities, and approximately 600,000 accounts in its Earn program.

Two months after initiating bankruptcy, Alex Mashinsky resigned as CEO in September. In a press release, he states that he will continue to maintain his focus on helping the community unite to work on a plan that will provide the best outcome for creditors.

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.

New York attorney-general Letitia James said in a statement.

The state of New York and AG Letitia James launched a crypto crackdown last year. The AG filed a lawsuit against Alex a day after Core scientific a leader in high-performance and blockchain infrastructure shut down 37,000 Bitcoin BTC miners owned by Celsius. James also filed a lawsuit against crypto lender Nexo at the end of September last year.

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

Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support, and critics have called them effectively Ponzi schemes.

A cryptocurrency lender is not regulated like a bank, so there’s no deposit insurance and no legal framework for who gets their money back first, like in a bankruptcy. It’s possible that Celsius’ investors, which include Quebec’s pension fund and the prominent venture capital fund WestCap, may get their investment back before Celsius’ depositors will.