Summary:
- Attorney General Letitia James accused former Celsius CEO Alex Mashinsky of leading investors “down a path of financial ruin”.
- James’ lawsuit seeks to ban Mashinsky from doing business in New York and secure restitution for aggrieved customers.
- Mashinsky stepped down as CEO in September 2022 amid over $1.2 billion in bankruptcy claims from creditors.
Former Celsius CEO Alex Mashinsky is being sued for fraud by New York Attorney General Letitia James. According to Attorney General James’ lawsuit filed on Thursday, Mashinsky “promised to lead investors to financial freedom but led them down a path of financial ruin”.
The Crypto lender declared bankruptcy in July 2022 shortly after TerraUSD (UST) and Terra Luna (LUNA) imploded, plummeting digital asset prices and wiping out over $40 billion from the crypto market.
Mashinsky later stepped down as CEO of the company amid reports of massive withdrawals from Celsius custodial wallets by Mashinsky himself and other top-ranking executives.
Attorney General James argued that Mashinsky continued to bait investors into depositing billions in crypto assets despite the company losing millions of dollars in risky investment strategies. Per Thursday’s filing, James said Mashinsky failed to register as a securities and commodities dealer.
The law is clear that making false and unsubstantiated promises and misleading investors is illegal. Today, we are taking action on behalf of thousands of New Yorkers who were defrauded by Mr. Mashinsky to recoup their losses. My office will stay vigilant and ensure that bad actors trying to take advantage of New York investors are held accountable.
– Attorney General Letitia James
The lawsuit against Mashinsky seeks to ban the Celsius founder from conducting business in New York. Attorney General James’s lawsuit is also after damages, disgorgement, and restitution.
$4.2 Billion In Earn Accounts Belongs To Celsius, Not Investors
Judge Martin Glenn ruled that $4.2 billion in crypto assets deposited to Celsius yielding bearing accounts belongs to the bankrupt crypto lender. The ruling means that some 600,000 account holders in Celsius’ earn program must wait until bankruptcy proceedings play out which could take months or years.
The Court concludes, based on Celsius’s unambiguous Terms of Use, and subject to any reserved defenses, that when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates (the “Estates”).
The beleaguered crypto lender is expected to submit a restructuring plan to the bankruptcy court by February 15, 2023.