NEW YORK, Jan 5 – Celsius Network founder Alex Mashinsky was sued by the New York state attorney general on Thursday, alleging he planned to defraud hundreds of thousands of investors by getting them to deposit billions of dollars into his now-defunct lending platform cryptocurrency.
Mashinsky was accused of promoting Celsius as a safe alternative to banks while concealing mounting losses from risky investments that contributed to its collapse, according to a complaint filed by Attorney General Letitia James in New York State Court in Manhattan.
“Alex Mashinsky promised to lead investors to financial freedom, but he led them down a path of financial ruin,” James said in a statement. “It is illegal to make false and unsubstantiated promises and deceive investors.”
Mashinsky did not immediately respond to requests for comment.
The civil suit accuses Mashinski of violating the state’s Martin Act, which gives James broad authority to prosecute securities fraud cases, and other laws.
They are seeking to ban Mashinsky from doing business in New York and make him pay damages, restitution and disgorgement.
Hoboken, New Jersey-based Celsius filed for Chapter 11 protection from creditors last July 13, a month after freezing withdrawals and transfers for its 1.7 million customers due to “extreme” market conditions.
James said Mashinsky’s promotional efforts through social media, interviews and cryptocurrency conferences helped Celsius amass $20 billion in digital assets early last year.
But according to the lawsuit, Celsius struggled to pay out promised returns on investors’ deposits, which led to its move into riskier investments.
The lawsuit says that two weeks before the withdrawal was frozen, Mashinsky was still dismissing criticism that Celsius was overextended and urging investors to “ignore FUD,” which stands for “fear, uncertainty and doubt.”