New York Attorney General Letitia James filed a lawsuit against Alex Mashinsky, co-founder and former CEO of Celsius Network, according to an announcement on Thursday.
James alleged that Mashinsky defrauded “hundreds of thousands of investors…out of billions of dollars worth of cryptocurrency.” The lawsuit also claims that Mashinsky “repeatedly made false and misleading statements about Celsius’s safety to encourage investors to deposit billions of dollars in digital assets onto the platform.”
Celsius, which was once one of the world’s largest crypto lenders, filed for bankruptcy protection in mid-July 2022. At the time, Celsius said it had anywhere between $1 billion and $10 billion in assets and liabilities and more than 100,000 creditors.
Prior to filing for bankruptcy, Celsius froze withdrawals for customers in June citing “extreme market conditions.” That freeze never lifted.
Celsius lost hundreds of millions of dollars of assets through risky investments and Mashinsky misrepresented and hid Celsius’ financial condition, the AG office stated. Additionally, Mashinsky failed to register as a salesperson for the platform and as a securities and commodities dealer, it added.
“The law is clear that making false and unsubstantiated promises and misleading investors is illegal,” James said in the release.
The NYAG lawsuit aims to ban Mashinsky, a New York resident, from doing any business in the state and require him to pay damages, restitution and disgorgement, for an undisclosed amount.
This legal action follows a number of suits by James. Last year, the attorney general sued Nexo for operating illegally and defrauding investors and reached a $1 million settlement with now-bankrupt BlockFi for offering unregistered securities, among other things.
This announcement follows a federal bankruptcy judge ruling from Wednesday stating that cryptocurrencies deposited into interest-bearing accounts at Celsius Network actually belong to the firm — thanks to the fine print.
The verdict gives Celsius ownership of the $4.2 billion in cryptocurrency that users deposited into its high-interest Earn program, according to a 45-page filing from the U.S. Bankruptcy Court Southern District of New York on Wednesday.
Celsius had approximately 600,000 accounts in its Earn program, and the accounts held a collective value of approximately $4.2 billion as of July 10, 2022, the filing noted. About $23 million of that value consisted of stablecoins.