On January 5, York Attorney General Letitia James sued Celsius founder and former CEO Alex Mashinsky for making repeated misrepresentations about the company’s financial products and asset holdings to investors. AG James describes the now bankrupt crypto-lending platform Celsius as “a cryptocurrency lending platform where investors could deposit their cryptocurrency in return for promises of high yields on those digital assets.”
In her complaint, AG James alleges that as Celsius’ founder and CEO, Mashinsky “promised investors high yields with minimal risk” and assured customers in interviews, on social media, and in advertisements that investments with the platform were “as safe as depositing money in a bank.” Contrary to Mashinsky’s statements, however, Celsius allegedly “engaged in risky investment strategies” and concealed its exposure to risky investment strategies” from investors despite “repeated promises of transparency.”
AG James also alleges that in May 2022, as cryptocurrency markets plummeted, Mashinsky continued to mislead investors, asserting Celsius’ investments were “strong as ever.” In reality, Celsius was allegedly insolvent and lacked the liquidity to satisfy growing customer withdrawals. Ultimately, Celsius suspended withdrawals from its platform on June 12 and declared bankruptcy a month later.
The complaint alleges Mashinsky’s fraudulent or illegal conduct violated New York General Business and Executive Laws and seeks to permanently bar Mashinsky from doing business in New York, secure disgorgement of any proceeds, and obtain damages and restitution.
Why This Matters
AG James’ suit demonstrates how corporate executives perceived to be personally engaged in illegal conduct could be exposed to suits from state AGs. Troutman Pepper will continue to monitor such suits, while providing updates on their success.