On Thursday, January 5, 2023, New York State’s Attorney General Letitia James filed a civil lawsuit against Alex Mashinsky, the former CEO and co-founder of Celsius, another cryptocurrency platform. In the lawsuit, AG Letitia James alleges that Mashinsky defrauded investors who deposited billions of dollars into Celsius before it declared bankruptcy in 2022. In the lawsuit, the AG claims that the fraud promulgated by Celsius impacted more than 26,000 investors in New York alone.
The lawsuit alleges that Mashinsky made multiple misleading and false statements about safety to encourage New Yorkers to deposit into Celsius. One such claim is that Mashinsky called Celsius “safer than a bank,” and made other unsubstantiated claims in his efforts to recruit more investors. Banks are well-regulated at the state and federal level, while Celsius was not, leaving hundreds of thousands of investors without the same protections.
Another misstatement was that Celsius would generate high returns by investing in low-risk collateralized loans to cryptocurrency exchanges as well as established institutions. As Celsius expanded, it couldn’t generate the kind of revenue it needed to pay those promised high returns. In order to find the revenue, the company “moved into significantly riskier investments, extending hundreds of millions of dollars in uncollateralized loans, and investing hundreds of millions of dollars in unregulated decentralized finance platforms,” according to the AG’s lawsuit.
Despite the insistence that Celsius only engaged in low-risk investments, investors’ funds were frequently exposed to high-risk investments and strategies, regularly resulting in losses. The AG’s press release described three investors who were wiped out by investing in Celsius, including two disabled veterans.
Crypto Currency Exchange Class Actions
One of the riskier investments that Mashinsky made was the loan of $1 billion to Alameda Research, the hedge fund arm of the now-defunct cryptocurrency exchange FTX created by founder Sam Bankman-Fried. Celsius accepted FTX’s token, FTT, as collateral for many of the loans. When the value of FTT collapsed, it became worthless as collateral for the loans from Celsius. No one yet knows how much of the $1 billion in debt was still outstanding at the time of the collapse last July.
AG James’ lawsuit seeks to permanently bar Mashinsky from engaging in anything related to the sale of commodities or securities in the state of New York. She also seeks to prevent him from serving as a director or officer of any New York company, and disgorgement of ill-gotten gain and proceeds due to his unlawful conduct. This includes damages and restitution for the defrauded New York investors.
Did You Invest With Alex Mashinsky’s Celsius?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.