Ex-Celsius CEO must respond to NY lawsuit
Alex Mashinsky, the founder and former CEO of Celsius Network, a centralized crypto lender that folded in 2022, has been directed by a Manhattan state court judge to respond to a lawsuit initiated by New York Attorney General Letitia James.
The lawsuit alleges civil fraud, claiming that Mashinsky misled investors by portraying Celsius Network as a safe banking alternative while withholding its risks and significant investment losses.
Judge Margaret Chan, overseeing the case, found evidence suggesting a link between Mashinsky’s actions and the financial losses suffered by investors.
James contends that Mashinsky misrepresented Celsius Network’s financial stability and investment safety and harmed investors.
Specifically, the lawsuit asserts that Mashinsky’s false claims about the lender’s financial health and investment security played a role in the financial losses faced by investors.
The judge’s ruling also allows specific claims under the Martin Act, a potent state securities law, to proceed. Additionally, the ruling classifies Celsius Network’s “earned interest accounts” as meeting the legal definition of securities under state law.
Mashinsky is facing criminal fraud charges and civil lawsuits from multiple U.S. regulatory bodies, including the Securities and Exchange Commission (SEC), following the collapse of Celsius Network.
Celsius Network capitalized on the heightened interest in crypto during the last bullish cycle, rapidly gaining popularity.
By offering enticing interest rates and streamlined loan access on top cryptocurrencies, including Bitcoin and stablecoins, it aimed to serve as a modern banking alternative.
However, the company grappled with regulatory scrutiny and financial challenges after crypto prices began dropping from last 2021. By the end of 2022, Bitcoin, for example, had fallen below $16,000.
In July 2022, Celsius Network sought Chapter 11 bankruptcy protection, revealing a substantial $1.19 billion deficit. The decision to file for bankruptcy came after a suspension of customer withdrawals and transfers, attributed to what the company described as “extreme” market conditions.
The lawsuit against Mashinsky and Celsius Network points to the ongoing regulatory complexities in crypto, especially in the United States.
The New York Office of the Attorney General (NYOAG) has been actively pursuing crypto firms they are convinced are violating the state’s security laws.
KuCoin was sued in March, and this week it emerged that Genesis Global Capital, a subsidiary of the Digital Currency Group (DCG), was being investigated by the NYOAG.