Letitia James, the attorney general of New York, will file a lawsuit against Alex Mashinsky, the founder and former CEO of the bankrupt cryptocurrency lender Celsius Network, on grounds of civil fraud. The attorney general’s allegations were found sufficient by a Manhattan state court judge on Friday. The claims accuse Mashinsky of deceiving investors about Celsius’ security while hiding major risks.
Additionally, Justice Margaret Chan determined that the “earned interest accounts” provided by Celsius met the requirements for securities under state law, allowing James to pursue some claims under the Martin Act, a strong state securities statute.
Justice Chan’s 25-page ruling states that the attorney general’s action supports a reasonable inference. Mashinsky’s false statements may have contributed to investors’ losses. The alleged misrepresentations were about Celsius’ financial stability and investment security.
Mashinsky has pleaded not guilty to criminal fraud charges brought by the U.S. Department of Justice in connection with Celsius’ failure in addition to the civil lawsuit. The U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, and U.S. The Federal Trade Commission have all filed similar civil actions against him.
Celsius Faces Legal Challenges Amidst Crypto Lender Scrutiny
Due to the rapid rise in the price of digital assets during the COVID-19 pandemic, cryptocurrency lenders like Celsius saw their business expand quickly. In exchange for depositors’ access to credit and high interest rates, lenders promised to lend tokens to institutional investors for profit.
Established in 2017, Celsius offered up to 17% interest on certain deposits. In July 2022, it sought Chapter 11 protection and disclosed a $1.19 billion balance sheet deficit, facing financial difficulties.
Due to what it referred to as “extreme” market conditions, the institution stopped withdrawals and transfers for its 1.7 million customers, worsening its financial predicament and ultimately forcing it into bankruptcy.
Attorney General Letitia James emphasized the court’s decision as a message to crypto companies. Full force of the law will punish those who deceive investors.
Mashinsky is dealing with increasing legal obstacles as the case develops, and the result may have a big impact on the bitcoin market. Regulators scrutinize crypto lenders, emphasizing the need for openness and investor protection. The digital asset market is rapidly evolving.