New York Attorney General Letitia James Thursday sued ex-CEO and cofounder of crypto trading platform Celsius Alex Mashinsky for defrauding customers. James claims that Mashinsky gambled “hundreds of thousands of investors” out of “billions of dollars of investment” by making risky investments in decentralised finance and hiding the reality of his company’s dwindling assets and increasing liabilities.
Mashinsky’s alleged fraudulent practices violated Article 23-A, § 352 of the New York General Business Law (GBL) and New York Executive Law § 63(12). Lastly, James argues Mashinsky is in violation of the Martin Act, GBL § 359-e and attendant regulations because he failed to register as a securities and commodities dealer and salesperson.
Mashinsky allegedly attracted investments by advertising deposit returns of up to 17 percent. According to the lawsuit, this figure was one of the highest rates that the market provided. Mashinsky promised investors their assets were “as safe as money in a bank” while simultaneously putting their money in high risk decentralised investments to follow through on the high returns. The lawsuit also revealed Mashinsky’s alleged ties with FTX. Celsius reportedly lent FTX $1 billion to fund FTX’s hedge fund Alameda in exchange for FTT crypto tokens. However, both FTX and Alameda filing for bankruptcy left Celsius with “worthless collateral” on any loans backed by the FTT tokens.
A combination of losses from high risk investments coupled with unsustainable high yield payments to investors left Celsius with net assets of negative $820 million. James said that the collapse of Celsius has left many investors in “financial ruin.” By September 2022 Mashinsky resigned and was replaced with interim CEO Christopher Ferraro, who intends to have a plan to exit Chapter 11 bankruptcy by mid-January.
A court appointed examiner is currently searching for fraudulent activities which may have occured prior to Celsius’ bankruptcy. The examiner’s final report is set to be released on January 17.