New York Attorney General Letitia James filed a lawsuit Thursday against Alex Mashinsky, co-founder and former CEO of cryptocurrency exchange Celsius, alleging he defrauded hundreds of thousands of investors out of billions of dollars in cryptocurrency.
The suit, filed in New York Supreme Court, alleges Mashinsky misrepresented his exchange’s safety to attract billions of dollars in digital assets from investors. As Celsius hemorrhaged money from risky investments, Mashinsky hid the exchange’s financial condition from those investors, James said.
James seeks to require Mashinsky, who did not register as a salesperson for Celsius or as a securities and commodities dealer, to pay damages, restitution and disgorgement. She also seeks to prohibit him from doing further business in New York.
Mashinsky claimed numerous times that Celsius was “safer than a bank,” James’ lawsuit said, adding that investors were promised high yields. Celsius, however, was not subject to the regulatory requirements of banks and did not offer the same protections.
Celsius filed for bankruptcy in July, and Mashinsky stepped down as CEO in September after calls from investors to let go of the reins.
Of the hundreds of thousands of investors affected by Celsius’ collapse, James’ lawsuit alleges that 26,000 were in New York. One, she noted in Thursday’s announcement, was a disabled veteran who lost $36,000, which he’d spent a decade saving. Another was a New Yorker who mortgaged two properties to invest in Celsius.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” James said in a statement. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
Celsius did not return a request for comment by press time.
James’ suit against Mashinsky is hardly surprising given her actions against crypto companies in the past two years. She sued crypto platform Nexo in September for allegedly defrauding investors, and reached a $1 million settlement with now-bankrupt BlockFi for offering unregistered securities in June.
“Over and over again, investors are losing billions because of risky cryptocurrency investments,” she said in a June warning to investors. “Even well-known virtual currencies from reputable trading platforms can still crash and investors can lose billions in the blink of an eye.”
Stablecoins Terra and Luna had depegged from the U.S. dollar a month earlier, triggering a wave of losses in the crypto market that encompassed hundreds of billions of dollars.
James issued a notice in October 2021, directing unregistered crypto lending platforms to cease operations. Nexo, one of James’ targets, agreed in December to cease U.S. operations.
