Alex Mashinsky, co-founder and former CEO of Celsius Network, has moved to dismiss the New York State complaint filed against him, which seeks to recompense everyone who lost money in the collapse of his crypto lender, which once had $30 billion in assets.
According to the complaint, Mashinsky committed securities fraud by providing false and misleading promises to consumers concerning the safety of assets stored on Celsius, as well as failing to register as a securities or commodities dealer.
Mashinsky argued in a response filed earlier this week that the crypto products offered by Celsius were neither securities nor commodities, and that New York State Attorney General Letitia James cherry-picked Mashinsky’s statements from hundreds of hours of YouTube broadcasts, “falsely depicting Celsius’s exceptional transparencies with its users as a deceptive tactic.”
“The complaint, which parrots misinformation on-line about Mashinsky and Celsius Network and borrows others’ baseless conclusions, demonstrates a fundamental misunderstanding of Celsius’s business, and Mashinsky’s role therein,” Mashinsky argues.
Instead, the former chief executive of the crypto firm pins the downfall on Terra and FTX.
“In May 2022, the prices of Terra and luna crashed by more than 99% and caused cryptocurrency to plunge, wiping out billions in value, and the industry to suffer significant losses, including for many of Celsius’s institutional counterparties. One particularly impactful event for Celsius was the unexpected and extremely rapid mass withdrawals of assets from Celsius’s platform, during which it lost over $672 million in assets over the course of several days,” Mashinsky says in his motion.
Celsius encountered difficulties following the collapse of the TerraUSD stablecoin last year, which was linked to the value of the US dollar via an algorithmic relationship with another currency, luna. Luna was immediately exchangeable for TerraUSD and was burned or produced in order to boost TerraUSD supply and demand, with the goal of forcing TerraUSD’s value to remain constant at $1 per coin. However, neither coin was backed by US dollars. Investors eventually sold both the luna and the TerraUSD, wiping away more than $40 billion in value.
A source close to Mashinsky cited a blog post that blamed Celsius’s demise on an onslaught by other corporations, specifically FTX (which went bankrupt a few months later). That blog, written by a pseudonymous Twitter user named Celhodl, claims that as customers began withdrawing their money from Celsius, the exchange realized its declining assets were now worth “$1.2 billion less than what users had deposited.”
“When everything started to sway, all major players (Celsius, FTX, Alameda, etc.) were asked to keep their capital on the platform, but Celsius pulled out earlier (to protect users’ capital) while the others lost large sums,” the blog read. “This so-called crypto mafia therefore decided to give back by shorting the CEL token, dumping stETH (staked ETH) and creating FUD around Celsius to create a so-called “bank run”.
At the same time, Alameda Research, FTX’s sister hedge fund, began shorting CEL, Celsius’s native token, using its now-famous ability to borrow an unlimited amount on the FTX platform without risk of liquidation, according to the blog. “Alameda et al. had the ability to borrow millions of synthetic CELs and dump them on the market so that the price was pushed down,” the blog states.
“Ultimately, however, circumstances outside of Mashinsky’s (and Celsius’s) control led to a liquidity squeeze that resulted in Celsius pausing withdrawals and filing for bankruptcy. Instead of acknowledging that Celsius’s eventual downfall was caused by a series of calamitous, external events, the NYAG pins all resulting losses on the alleged misstatements on Mashinsky alone,” the former CEO’s motion said.
Following Celsius’ collapse, New York Attorney General Letitia James filed a civil lawsuit against Mashinsky in January, saying that the co-founder cheated investors out of billions of dollars in digital currency.
The lawsuit claims that the former CEO misled investors about Celsius’s financial strength and then disguised the lender’s terrible predicament after it lost hundreds of millions of dollars in hazardous transactions. According to the lawsuit, Mashinsky fraudulently claimed that Celsius was safer than a bank and only lent assets to respectable organizations.
“Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said James. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
This follows after the U.S. Bankruptcy Judge Martin Glenn determined that the firm owns the $4.2 billion in crypto deposits in Celsius’s Earn accounts, not the customers. This effectively puts most of the 600,000 accounts at the back of the line for repayment in the crypto lender’s bankruptcy.
According to a bankruptcy court-appointed examiner’s investigation into the crypto lender’s operations before its collapse last year, Celsius utilized customer funds to offset shortfalls in its obligations to pay stratospheric yields and to prop up the value of its CEL coin while certain firm insiders were cashing out.
“From its inception, however, Celsius and the driving force behind its operations, Mr. Mashinsky, did not deliver on these promises. Behind the scenes, Celsius conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect,” the report said.
According to the report, Celsius had been secretly timing its acquisitions since the middle of March 2020 in order to drastically boost the price of CEL. CEL’s price had “raised by 14,751%” by June 2021.
And despite constantly denying his dumps to the public, Mashinsky is said to have sold at least 25 million CEL tokens worth at least $68.7 million since 2018.
Following this, the official committee of unsecured creditors proposed to sue Mashinsky, his wife, and several executives for “fraud, recklessness, gross mismanagement and self-interested conduct” that led to the crypto lender’s demise.
According to the lawyers, the executives made “negligent, reckless (and sometimes self-interested) investments” that caused Celsius to lose $1 billion in a single year, while mismanagement resulted in another quarter-billion dollar loss “because they could not adequately account for the company’s assets and liabilities.”
“After that loss, they did not invest in or develop the company’s systems to adequately fix the issue, resulting in further losses,” they noted.
Information for this briefing was found via The Block and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.