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Justice Margaret Chan said the attorney general sufficiently
alleged that Mashinsky defrauded investors by touting Celsius as
a safe alternative to banks and concealing its risks, including
hundreds of millions of dollars of investment losses.
Chan also said James could pursue some claims under the Martin
Act, a powerful state securities law, and that the "earned
interest accounts" that Celsius offered customers qualified as
securities under state law.
The attorney general's lawsuit "supports a reasonable inference
that the harm suffered by investors flowed, at least in part,
from Mashinsky's alleged misrepresentations made in New York
concerning Celsius' overall financial health and investment
safety," Chan wrote in a 25-page decision.
Mashinsky has separately pleaded not guilty to criminal fraud
charges brought by the U.S. Department of Justice tied to
Celsius' demise.
He also faces related civil lawsuits by the U.S. Securities and
Exchange Commission, U.S. Commodity Futures Trading Commission
and U.S. Federal Trade Commission.
Lawyers for Mashinsky in the New York civil case did not
immediately respond to requests for comment.
James, in a statement, said the decision "should serve as
another reminder to crypto companies that we will use the full
extent of the law against those who defraud investors."
Cryptocurrency lenders such as Hoboken, New Jersey-based Celsius
grew rapidly as digital asset prices surged higher during the
COVID-19 pandemic.
The lenders promised easy loan access and high interest rates to
depositors, and lent tokens to institutional investors, hoping
to profit from the difference.
Celsius was founded in 2017 and had offered 17% interest on some
deposits, but had a $1.19 billion balance sheet deficit when it
sought Chapter 11 protection in July 2022, according to
regulators and court filings.
The bankruptcy came one month after Celsius froze withdrawals
and transfers for its 1.7 million customers, citing what it
called "extreme" market conditions.
The case is New York v. Mashinsky, New York State Supreme Court,
New York County, No. 450040/2023.
(Reporting by Jonathan Stempel in New York; Editing by Will
Dunham and Cynthia Osterman)
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