The ruling underscores the Wild West nature of the unregulated crypto industry. On Thursday, New York Attorney General Letitia James moved to impose an injunction, or at least legal effect, of sorts on Celsius founder Alex Mashinsky, whom she accused in a lawsuit of defrauding hundreds of thousands of consumers.
Crypto fortunes have plummeted in recent months since Celsius became the first major crypto platform to implode last year, with its bankruptcy in July costing 600,000 Americans at least $4.2 billion, according to court papers, and four months The latter foreshadowed the downfall of FTX.
Meanwhile, James’ lawsuit alleges that Mashinsky used “false and misleading representations” to induce [customers] for hoarding billions of dollars in digital assets.” The suit seeks unspecified damages from Mashinsky and seeks to bar him from several financial and other functions in New York.
Luke Wolf, a spokesman for Celsius, said Mashinsky is no longer involved in the management of the company. Mashinsky did not respond to a message seeking comment.
For years, Celsius promised extraordinary interest rates in the neighborhood of 20 percent to people in a sort of fictional version of a real-world bank, prompting many people with no interest in crypto to enter the market.
The suit says that Mashinsky was the reason. “In hundreds of interviews, blog posts and livestreams,” it says, “Mashinsky promoted Celsius as a safe alternative to banks, while concealing that Celsius was actually engaged in risky investment strategies.”
Frozen Mysteries Of Crypto: The Fate Of Billions In The Celsius Deposit
Mashinsky was known for his regular “Ask Mashinsky Anything” Q&S online and T-shirts with messages such as “Banks Are Not Your Friends”. Hordes of fans on YouTube and Twitter praised the cult of “The Machine”, as he was nicknamed. If FTX’s Sam Bankman-Fried was the public face of crypto in the halls of Washington, Mashinsky was often its most prominent symbol to ordinary investors.
The suit painted a picture of a man who intended to present himself as a hero to the unbanked and working class, when in fact those people’s money was used to fund highly risky investments. used to go.
“Describing himself and his company as modern-day Robin Hoods, Mashinsky claimed that Celsius ‘yields … to those who would never be able to do it themselves, [and] We take it from the rich,'” the suit said. “These promises were false.”
According to the bankruptcy court, however, there may be a limit to what the legal system can do when crypto companies are smart enough to protect themselves. Investors and several states involved in their proposal say the language in the rights granted to Celsius was at least “vague”. But Glenn disagreed.
Celsius’s attorneys, Joshua Susberg and Patrick J. Nash Jr., and the creditors’ attorneys, Gregory Pace and Andrea Amulik, did not respond to requests for comment.
The bankruptcy ruling focused specifically on whether Celsius could now sell $18 million in so-called stablecoins, a type of virtual currency, as part of the reorganization to help it stay solvent. But its implications are far greater. By ruling that the money in the accounts was not actually owned by the 600,000 account holders, the court has basically said that they are now just unsecured creditors. Glenn wrote, “there will not be enough value available to repay them”.
The effects could go well beyond them to hit other crypto platforms with stricter language in their fine print – presenting problems to customers in the event of a collapse.
“It just raises another question about how hard it is to transact in the Wild West of crypto,” said Brian Marks, who teaches economics and business law at the Pompeia College of Business at the University of New Haven and studied the Celsius case. Have done “I would not be surprised to see other companies re-examine their terms and conditions after this.”
The connections between crypto firms are vast, and the failure of one can affect the other even months later. On Thursday, crypto lender Genesis said it would lay off 30 percent of its staff partly as a result of the loan to FTX sister firm Alameda Research.
Celsius creditors are also affected by the FTX bankruptcy. Mashinsky’s former firm, the New York lawsuit revealed, loaned Almeida $1 billion, which it collateralized with FTX’s token FTT.
“FTT has dropped in value by about 95%,” it said, “leaving Celsius as collateral almost worthless.”