New York AG accuses former CEO of Celsius of defrauding crypto investors

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Alex Mashinsky, founder and CEO of Celcius Network Ltd., during a panel session at the Blockchain Week Conference in Paris, France, April 13, 2022.

Benjamin Girette | Bloomberg | Getty Images

New York Attorney General Letitia James sued former Celsius Network CEO Alex Mashinsky on Thursday, alleging that Mashinsky defrauded hundreds of thousands of investors out of billions of dollars at the now bankrupt cryptocurrency exchange.

Mashinsky assured his customers that investing with Celsius was both safer and more profitable than leaving their investments in a traditional bank. At one point, investments at the crypto exchange were valued at $20 billion, according to the complaint. But Mashinsky’s statements were false, James claims, and became part of his efforts to hunt deep losses on risky crypto-lending investments.

“As CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” James said in a statement.

The attorney general’s office is seeking to fine Mashinsky and collect monetary damages, and ban him from managing a company or working in the securities industry in New York.

The action is civil, not criminal, and was brought under the Martin Act, New York state’s broad securities law. The Martin Act gives prosecutors investigative and subpoena powers to investigate possible crimes.

Celsius offered a sky-high yield that attracted investors and boosted the exchange’s coffers. Celsius, like now-bankrupt Voyager Digital, was able to pay returns as high as 17%​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​front. Capital, now known as 3AC, and Alameda Research Sam Bankman-Fried.

The crash of cryptocurrencies terra and luna in 2022 forced 3AC to enter bankruptcy and deepened the “crypto winter”. Celsius was exposed to the collapse of terra and luna both through loans to 3AC and through $935 million of direct investment in “highly speculative” terra bets, all financed with investors’ money, the complaint said.

Mashinsky said Celsius had “very small losses” and that the exchange had “substantially reduced or eliminated any exposure” to borrowers with investments in terra or luna.

Those statements were false, James’ complaint alleges, and were part of a broader campaign to block the flow of customers who might have run over the bank. similar to what happened at FTXanother broken exchange.

But Mashinsky made “grossly false and misleading” statements designed to hide Celsius’ true level of exposure, claiming the crypto exchange had “billions in liquidity” just days before Celsius filed for bankruptcy on 13 July 2022, the complaint alleges.

Celsius investors were left unscathed and so desperate that some contemplated suicide, CNBC previously reported.

“Mashinsky never disclosed that Celsius had nearly a billion dollar deficit,” the complaint states. Celsius entered bankruptcy proceedings with only $1.75 billion in crypto assets, a far cry from $4.7 billion owed to consumers.

Mashinsky stepped down as CEO in September. At the time, he apologized for the “increasing distraction” his leadership had caused.

“Alex Mashinsky is no longer employed by Celsius and is not involved in the management of the company,” a spokesperson for Celsius told CNBC.

Mashinsky did not immediately respond to requests for comment.

Celsius CEO Alex Mashinsky steps down, and FTX buys Voyager assets for $1.4 billion: CNBC Crypto World
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