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HomeBusiness InnovationFormer Celsius Network CEO Sued For Allegedly Defrauding Investors Out Of Billions

Former Celsius Network CEO Sued For Allegedly Defrauding Investors Out Of Billions

Key Highlights

  • New York Attorney General, Letitia James, has filed a lawsuit against Alex Mashinsky, former CEO of Celsius Network, a now-bankrupt cryptocurrency exchange. 
  • James alleges that Mashinsky defrauded hundreds of thousands of investors out of billions of dollars by making false claims that investing with Celsius was safer and more profitable than traditional banks. 

The lawsuit seeks to fine Mashinsky and levy monetary damages, barring him from leading a company or working in the securities industry in New York. The action is a civil case brought under the Martin Act, a New York state securities law that grants prosecutors wide-ranging powers to investigate potential wrongdoing.

Statements By Mashinsky

According to the complaint, Mashinsky made statements assuring investors that their deposits at the crypto exchange were safe, even though he knew that the company was facing significant losses on risky crypto-lending investments. 

At one point, deposits at Celsius Network were valued at $20 billion. However, the crash of cryptocurrencies terra and luna in 2022 led to the bankruptcy of Three Arrows Capital (3AC), a crypto hedge fund that had borrowed customer assets from Celsius. The exchange was also directly invested in “highly speculative” terra bets, totaling $935 million, funded by investor funds.

Despite this, Mashinsky claimed that Celsius had “very small losses” and had “basically reduced or eliminated any exposure” to borrowers with investments in terra or luna. 

The complaint alleges that Mashinsky never disclosed that Celsius had a nearly billion-dollar deficit and entered bankruptcy proceedings with only $1.75 billion in crypto assets, compared to the $4.7 billion it owed to users.

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Resignation of Mashinsky

Celsius investors were reportedly left devastated by the collapse of the exchange, with some even considering suicide. Mashinsky resigned as CEO in September, apologizing for the “increasing distraction” caused by his leadership. 

A spokesperson for Celsius Network confirmed that Mashinsky is no longer employed by the company and is not involved in its management. Mashinsky has not yet commented on the lawsuit.

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