Celsius founder to face New York fraud lawsuit.

Celsius founder to face New York fraud lawsuit.

Founder of Crypto Lender Celsius Network Faces Lawsuit for Fraud


In a recent ruling by Manhattan state court judge Margaret Chan, Alex Mashinsky, the founder and former chief of the now-bankrupt cryptocurrency lender Celsius Network, must face a lawsuit filed by New York Attorney General Letitia James, accusing him of civil fraud. This development has sparked significant interest and concern within the crypto community.

The lawsuit alleges that Mashinsky misled investors by promoting Celsius as a safer alternative to traditional banks while concealing the significant risks associated with the platform. These risks include substantial investment losses amounting to hundreds of millions of dollars. Judge Chan found that the attorney general’s claims were credible and sufficient to proceed with the case.

Furthermore, the judge ruled that the lawsuit could be pursued under the Martin Act, a powerful securities law in New York. Additionally, the judge determined that the “earned interest accounts” offered by Celsius qualified as securities under state law. This is a significant finding, as it opens avenues for the attorney general to build a strong case against Mashinsky.

The ruling emphasizes that investors suffered harm as a result of Mashinsky’s alleged misrepresentations made in New York regarding Celsius’ financial health and investment safety. This decision highlights the importance of transparency and accountability in the crypto industry and serves as a reminder to companies that defrauding investors will not be tolerated.

It is worth noting that Mashinsky has already pleaded not guilty to criminal fraud charges brought against him by the U.S. Department of Justice related to Celsius Network’s collapse. Moreover, he faces civil lawsuits from other regulatory bodies, including the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, and U.S. Federal Trade Commission. The outcome of these cases will have significant implications for the future of crypto lending platforms.

Lawyers representing Mashinsky in the New York civil case have not provided immediate comment on the ruling. The decision by the judge is seen as a significant win for Attorney General Letitia James, who stated that it “should serve as another reminder to crypto companies that we will use the full extent of the law against those who defraud investors.” This sentiment showcases the government’s commitment to protecting investors within the rapidly growing cryptocurrency space.

Cryptocurrency lending platforms, such as Celsius, experienced tremendous growth during the COVID-19 pandemic as digital asset prices skyrocketed. These platforms attracted depositors with promises of easy access to loans and high-interest rates. Additionally, they lent tokens to institutional investors in the hopes of profiting from the interest rate differentials.

Founded in 2017, Celsius gained popularity by offering an attractive 17% interest rate on some deposits. However, the company faced financial challenges and ultimately sought Chapter 11 bankruptcy protection in July 2022. Regulators and court filings revealed a staggering $1.19 billion balance sheet deficit at the time of the filing. The bankruptcy filing occurred just one month after Celsius froze withdrawals and transfers for its 1.7 million customers, citing extreme market conditions.

The outcome of this lawsuit will have far-reaching implications for the crypto lending industry as a whole. It highlights the need for regulatory oversight and stricter compliance measures to protect investors and maintain market integrity. The case, New York v. Mashinsky, is being closely monitored by industry participants and enthusiasts alike.