Celsius founder Mashinsky sued for fraud by New York attorney-general

Celsius Network founder Alex Mashinsky has been hit with a civil lawsuit from the New York attorney-general, which accuses the former head of the bankrupt crypto lender of defrauding hundreds of thousands of investors and flouting the state’s securities laws.

The 57-year-old, who established Celsius in 2017 and was running the business when it dramatically collapsed in July, had promoted the company “as a safe alternative to banks while concealing that [it] was actually engaged in risky investment strategies”, the lawsuit said.

Celsius’s bankruptcy was a watershed moment in the unprecedented market crash that hit the digital assets sector last summer. Other once-prominent firms including Three Arrows Capital also collapsed after a sharp downturn in the value of popular tokens such as bitcoin.

In a complaint filed on Thursday, the attorney-general’s office claimed Mashinsky acted as a “modern-day Robin Hood”, promising customers returns of up to 17 per cent via its Earn programme — which paid interest on cryptocurrency deposits — and urged users to stay invested even as the hole in the platform’s balance sheet grew larger.

They said Mashinsky had also failed to register as a salesperson for Celsius and as a securities and commodities dealer under New York law.

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

Celsius froze customer withdrawals in June, and filed for bankruptcy the following month, revealing a more than $1bn deficit. In October, the FT reported that Mashinsky himself withdrew $10mn from Celsius just weeks before customer accounts were frozen, amid growing turmoil.

The AG’s office said a disabled veteran was among the New Yorkers to have lost money with Celsius, having invested a decade’s worth of savings totalling $36,000, while another disabled citizen making just $8 per hour lost his entire investment on the platform.

Should the AG’s suit succeed, Mashinsky could be barred from doing business in New York state and be forced to repay investors.

A lawyer for Mashinsky did not immediately respond to a request for comment on the lawsuit. Mashinsky, who resigned as Celsius’ chief executive in September, previously said he was “very sorry about the difficult financial circumstances members of our community are facing”.

The AG’s suit comes after a ruling issued in an New York bankruptcy court on Wednesday found Celsius’s “unambiguous” terms of service made it clear that crypto assets deposited in the company’s Earn Accounts were Celsius’s property, ruling against some account holders who argued that they owned their deposits.

In July of last year, Celsius had approximately 600,000 accounts in its Earn programme. These accounts held crypto with a market value worth over $4bn as of July 10. Celsius reported liabilities exceeding $5bn in a bankruptcy filing.