NEW YORK: Alex Mashinsky, the founder and former chief of the now-bankrupt cryptocurrency lender Celsius Network, must face a lawsuit by New York Attorney General Letitia James accusing him of civil fraud, a Manhattan state court judge ruled on Friday (Aug 4).
Justice Margaret Chan said the attorney general sufficiently alleged that Mashinsky defrauded investors by touting Celsius as a safe alternative to banks and concealing its risks, including hundreds of millions of dollars of investment losses.
Chan also said James could pursue some claims under the Martin Act, a powerful state securities law, and that the “earned interest accounts” that Celsius offered customers qualified as securities under state law.
The James lawsuit “supports a reasonable inference that the harm suffered by investors flowed, at least in part, from Mashinsky’s alleged misrepresentations made in New York concerning Celsius’ overall financial health and investment safety”, Chan wrote in a 25-page decision.
Mashinsky has separately pleaded not guilty to criminal fraud charges brought by the US Justice Department tied to Celsius’ demise. He also faces related civil lawsuits by the US Securities and Exchange Commission, US Commodity Futures Trading Commission and US Federal Trade Commission.
Lawyers for Mashinsky in the New York civil case did not immediately respond to requests for comment. James’ office did not immediately respond to similar requests.
Cryptocurrency lenders such as Hoboken, New Jersey-based Celsius grew rapidly as digital asset prices surged higher during the COVID-19 pandemic. The lenders promised easy loan access and high interest rates to depositors, and lent tokens to institutional investors, hoping to profit from the difference.
Celsius was founded in 2017 and had offered 17 per cent interest on some deposits, but had a US$1.19 billion balance sheet deficit when it sought Chapter 11 protection in July 2022, according to regulators and court filings.
The bankruptcy came one month after Celsius froze withdrawals and transfers for its 1.7 million customers, citing what it called “extreme” market conditions.
The case is New York v Mashinsky, New York State Supreme Court, New York County, No. 450040/2023.