Alex Mashinsky, co-founder and former CEO of Celsius, now faces a lawsuit over its false advertisements.
According to a press release published on Jan. 6, New York Attorney General Letitia James filed a lawsuit that accused Mashinsky of deceptive statements on the firm’s credibility.
More Legal Trouble
The filing noted that “Mashinsky drew investors to the Celsius platform by repeatedly and misleadingly stating that digital assets deposited with Celsius were as safe as – or even safer than – money deposited in a traditional bank.”
The Attorney General claimed that Mashinsky lied to investors by providing false statements on the number of users, strategies to attract new customers, and customers’ safeguards.
The former CEO, well-known for his quote “banks are not your friends,” accusingly bent the truth when stating that Celsius Network was safer than traditional banks.
James concluded that Mashinsky violated state federal laws which indicates clearly that “making false and unsubstantiated promises and misleading investors is illegal.”
Still in Murky Water
The news came just one day after Celsius gained ownership of $4.2 billion in customer funds. On Jan. 5, the US Bankruptcy Judge for the Southern District of New York Martin Glenn approved Celsius’ ownership of the property.
The judge’s decision has provoked fierce controversy among the crypto members, particularly 600,00 creditors involved in Celsius Earn. Customers opposed the decision, citing that Celsius made vague statements in the agreement.
Furthermore, the agreement was updated with urgent requirements and changes, leaving customers with risk of account ban if they didn’t agree with new policies.
The NY Attorney General is seeking to bar Mashinsky from ever running a business again in the state and reimburse customers for the full extent of the damage. Last year, attorney Letitia James filed lawsuits against Nexo, claiming that Nexo offered unregistered securities.
The collapse of Terra (LUNA) casted a shadow over a series of cryptocurrency companies as users fled from the exchanges.
Faced with severe financial troubles, Celsius Network halted withdrawals of funds in June, dragging down hundreds of thousands investors. The reason behind the move was the market volatility, as explained by Celsius at that time.
The distressed crypto lender eventually announced its insolvency in mid-July 2022. Celsius filed for Chapter 11 Bankruptcy and sought restructuring after it failed to handle massive withdrawals.
It was reported that Celsius suffered over $1 billion loss and $4,2 billion of customers were stuck on the platform. Customers claimed that Celsius’ operation was in fact a Ponzi scheme with an extremely attractive yield of 20% APY.
Celsius’ investment strategy also failed to meet profitability as $1 billion poured into Anchor turned into a failure. Anchor is a lending and borrowing protocol associated with the disgraced stablecoin-focused project Terra.
Alex Mashinsky stepped down as CEO of Celsius in September 2022. The co-founder has since faced major criticism due to lack of transactional transparency.
Mashinsky, together with Celsius CSO Daniel Leon and CTO Nuke Goldstein, was accused of withdrawing funds before Celsius filed for bankruptcy protection. He withdrew approximately $10 million in May 2022 while Leon withdrew around $7 million and $4 million CEL by the end of May.
Goldstein reportedly made a $13 million withdrawal and sold over $7 million CEL. However, certain data suggested that Goldstein simply transferred funds among his wallets on Celsius.
Unlike banks, which typically offer a guarantee on customer deposits, Celsius did not offer any protection to customers. All digital assets sent to the platform, according to the company’s terms and policies, are loans between users and Celsius.
Customers’ deposits were unsecured loans because there was no collateral. Customers find it difficult to get their money back when there is a problem, and in this market, there are problems everywhere you look!