New York attorney general sues founder of crypto bank
New York Attorney General Letitia James on Thursday sued the founder of collapsed cryptocurrency bank Celsius Network, accusing him of a scheme to defraud hundreds of thousands of investors.
The lawsuit stems from Celsius' implosion last summer, when the company filed for bankruptcy and its customers lost billions of dollars in deposits. For years, Celsius founder Alex Mashinsky, 57, misled customers into depositing their crypto savings on the platform, promising that it was as safe as a traditional bank, the lawsuit claimed. The lawsuit seeks to bar him from conducting business in New York and force him to pay damages.
“When Celsius suffered losses on risky investments, Mashinsky failed to disclose these losses to investors,” the lawsuit said. “The collapse of Celsius left many individuals in a state of desperation and financial ruin.”
A Celsius spokesperson said in a statement that Mashinsky was no longer involved in the company's management. Mashinsky did not respond to a request for comment. The lawsuit is the latest aggressive government response to the risky practices and widespread fraud that sent the crypto industry into crisis in 2022. Last month, U.S. prosecutors charged Sam Bankman-Fried, founder of the collapsed crypto exchange FTX, with widespread fraud. Bankman-Fried also faces civil charges from the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Wednesday, the SEC also pushed back on plans by the U.S. arm of giant crypto exchange Binance to buy Voyager Digital, a crypto lending operation similar to Celsius that failed about the same time.
Before FTX declared bankruptcy in November, Celsius' failure was considered arguably the worst moment of crypto's disastrous 2022. For years, Mashinsky had promoted the company with a too-good-to-be-true marketing promise: interest as high as 17% on crypto deposits.
As the industry boomed, he became one of its most successful and charismatic pitchmen. He frequently appeared in YouTube videos promoting Celsius as a populist and egalitarian alternative to the traditional banking system, which he said was ripping off customers.