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Alex Mashinsky, Founder of Celsius Network, Facing Lawsuit by New York Attorney General

New York, August 4 – Alex Mashinsky, the founder and former chief of the now-bankrupt cryptocurrency lender Celsius Network, has been ordered by a Manhattan state court judge to face a lawsuit filed by New York Attorney General Letitia James. The lawsuit accuses him of civil fraud.

Justice Margaret Chan ruled that the attorney general’s allegations are sufficient to support the claim that Mashinsky defrauded investors. Mashinsky is accused of promoting Celsius as a safe alternative to banks while concealing the risks associated with the platform, including significant investment losses amounting to hundreds of millions of dollars.

In her decision, Chan also stated that James can pursue some claims under the Martin Act, a powerful state securities law. Additionally, she ruled that the “earned interest accounts” offered by Celsius are classified as securities under state law.

The lawsuit brought by James alleges that the misrepresentations made by Mashinsky in New York regarding Celsius’ overall financial health and investment safety contributed, at least in part, to the harm suffered by investors, as stated in the 25-page decision by Justice Chan.

Furthermore, Mashinsky is facing criminal fraud charges by the US Justice Department related to Celsius’ collapse. Several civil lawsuits have also been filed against him by regulatory bodies such as the US Securities and Exchange Commission, US Commodity Futures Trading Commission, and US Federal Trade Commission.

Lawyers representing Mashinsky in the New York civil case have not yet provided any comments, while the Attorney General’s office is yet to respond to requests seeking comment.

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Cryptocurrency Lenders and Celsius Network Bankruptcy

Cryptocurrency lenders, including Celsius Network based in Hoboken, New Jersey, experienced rapid growth during the COVID-19 pandemic as digital asset prices soared. These lenders attracted depositors by promising easy loan access and high interest rates while lending tokens to institutional investors, aiming to generate profits from the interest rate differential.

Founded in 2017, Celsius Network offered attractive interest rates of up to 17% on certain deposits. However, regulatory bodies and court filings revealed that the company had a significant balance sheet deficit amounting to US$1.19 billion when it filed for Chapter 11 bankruptcy protection in July 2022.

The bankruptcy filing came after Celsius Network imposed a freeze on withdrawals and transfers for its 1.7 million customers, citing “extreme” market conditions. This unexpected development caused concerns among customers and raised questions about the sustainability and transparency of the platform.

The case, titled New York v Mashinsky, is being heard in the New York State Supreme Court, New York County, with the case number 450040/2023.

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