Former Celsius Network Ltd. Chief Executive Officer Alex Mashinsky, whose once high-flying crypto lender went bankrupt last year, was ordered by a New York judge to face a civil fraud lawsuit filed by New York’s attorney general.
A court order issued Friday denied Mashinsky’s motion to dismiss the suit by New York’s top law enforcement officer, Letitia James, who brought the case about six months before the former CEO was hit with federal criminal charges.
Mashinsky is accused in the civil suit of duping hundreds of thousands of investors out of billions of dollars of cryptocurrency by repeatedly making false and misleading statements about the lender’s safety, all of which the former CEO denies.
“There are sufficient allegations alleged to support a plausible inference that Mashinsky’s alleged misstatements induced or promoted new investors to deposit assets in Celsius’s” earned-interest accounts, New York County Supreme Court Justice Margaret Chan said in her ruling.
Lawyers for Mashinsky didn’t immediately respond to a request for comment. He has pleaded not guilty to the criminal charges.
James’s lawsuit, filed in January, previewed an indictment unsealed last month in Manhattan in which prosecutors claim that from 2018 through June 2022 Mashinsky orchestrated a wide-ranging scheme to mislead Celsius customers about “core aspects” of the company’s business and inflate the value of its proprietary token, CEL.
Read More: Celsius and Mashinsky: The Most Striking Indictment Details
New York’s lawsuit aims to permanently bar Mashinsky from doing any business relating to the issuance, offer or sale of securities or commodities in the state. It also seeks to stop him from serving as director or officer of any company doing business in New York.
In seeking to have James’s suit dismissed, Mashinsky’s lawyers argued his alleged misstatements, mostly made during weekly “Ask Mashinsky Anything” sessions online, were “nonactionable puffery” and not material, according to the order. But the judge disagreed.
In one example, the attorney general alleged that Mashinsky claimed 2 million people had earned yield on their crypto even though many Celsius users hadn’t even transferred assets to the platform.
The allegations, Chan wrote, depicted an “individual actively misrepresenting the financial condition of his company to keep it afloat.”
Celsius filed for bankruptcy in July 2022 amid a $2 trillion crypto market crash that wiped out some of the industry’s biggest names and exposed hundreds of thousands of investors to steep losses. The lender, which had made risky bets before the collapse, at the time disclosed a $1.19 billion deficit.
(Updates with details from the lawsuit.)
Author: Erik Larson and Ava Benny-Morrison
