New York’s attorney general has sued Celsius Network founder Alex Mashinsky, claiming he defrauded investors out of billions of dollars in digital currency by concealing the failing health of his now-bankrupt cryptocurrency lending platform.
Mashinsky persisted in promoting Celsius as a safe alternative to banks, paying interest as high as 17 percent on deposits, while concealing hundreds of millions of dollars of losses in risky investments, according to a complaint filed by Attorney General Letitia James on Thursday.
The civil lawsuit seeks to ban Mashinsky from doing business in New York and have him pay damages for violating laws including the state’s Martin Act, which gives James broad power to pursue securities fraud cases.
“Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” James said in a statement. “Making false and unsubstantiated promises and misleading investors is illegal.”
Neither Mashinsky nor his lawyer immediately responded to requests for comment. Celsius is not a defendant in the lawsuit, filed in a state court in Manhattan.
Crypto lenders gained popularity during the COVID-19 pandemic by promising easy loan access and high interest rates to depositors. They then lent out tokens to institutional investors, hoping to profit from the difference.
But the business model often proved unsustainable in 2022 after a selloff in cryptocurrency markets, including the collapse of the terraUSD and Luna tokens.
The lawsuit against Mashinsky is the latest government effort to address risky crypto practices.
It follows the federal criminal charges brought last month accusing FTX crypto exchange founder Sam Bankman-Fried of widespread fraud. He has pleaded not guilty.
James’s lawsuit “adds to the fear factor likely facing the industry, where money is extremely tight and the capacity to absorb large fines is going to be much more limited,” said Yesha Yadav, associate dean at Vanderbilt Law School in Nashville, Tennessee.
