NY Attorney General Sues Alex Mashinsky: on the count of Defrauding Investors

• Celsius gained traction during the pandemic, promising easy loans and high interest. 
• Alex is accused of keeping the promotions going despite knowing the state of Celsius. 
• As of November 2022, they have $9 billion in liabilities, including $4.3 billion owed. 

Another trouble for the bankrupt crypto lending company Celsius, as New York’s attorney general has sued its founder Alex Mashinsky, where he claimed that he defrauded investors for billions of dollars in digital currency as he hid the failing health of the lending platform. 

Alex kept promoting Celsius as a safer alternative to banks as it paid high interest of as much as 17% on deposits, all while hiding millions of dollars worth of losses in their risky investments, as per the complaint filed by Attorney General Letitia James on Thursday. 

The civil lawsuit demanded Alex be banned from doing any business in New York, and he was made to pay back the damages for violating the laws, including the state’s Martin Act, which allowed James a broader power in pursuing securities fraud cases. 

“Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin. Making false and unsubstantiated promises and misleading investors is illegal.” Said James in a statement.

Neither Alex nor his lawyers had responded immediately to requests for comment. Celsius is not an accused in the lawsuit filed in a state court in Manhattan. 

Celsius gained immense popularity during the pandemic as it promised easy loan access and higher interest rates on deposits. They went on to lend out tokens to many institutional investors in the hope of gaining profit from the difference. But sadly, this business model proved ineffective in 2022 due to a selloff in cryptocurrency markets. 

This lawsuit is considered important in addressing risky crypto practices by the government. 

An associate dean at Vanderbilt Law School in Nashville, Tennessee, Yesha Yadav, feels that the absence of a comprehensive federal framework for crypto regulation allows James to be aggressive in this case, further saying that:

“James’s lawsuit adds to the fear factor facing the industry, where money is extremely tight and the capacity to absorb large fines is going to be much more limited.” 

Celsius filed for Chapter 11 bankruptcy on July 13, 2022; at the time, they were $1.9 billion in deficit as per the balance sheets. The company ended November 2022 with $9 billion in liabilities, including $4.3 billion plus, which they owed to the customers. 

James said this deceit continued from 2018 to 2022 until the company froze the deposits, making more than 26,000 New Yorkers victims of this financial trickery. 

Alex Mashinsky was born in Ukraine and later migrated to Israel, and before starting Celsius in 2017, he had ample experience in starting multiple businesses. The promotional efforts employees behind Celsius helped them gain $20 billion of digital assets, but they started having problems delivering the promised returns, and then they moved to riskier waters. 

Alex was very vocal regarding ignoring FUD and dismissed all the criticism weeks before they froze the transactions. 

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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