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Bankrupt cryptocurrency lender may have defrauded investors of billions of dollars

The New York attorney general filed a civil lawsuit Thursday against the co-founder of now-bankrupt cryptocurrency lender Celsius Networks for allegedly defrauding hundreds of thousands of investors who deposited billions of dollars on the platform.

The lawsuit against Alex Mashinsky alleges he made false and misleading statements to encourage investors to put billions of dollars worth of digital assets in Celsius, which filed for court protection last year. Mashinsky resigned shortly afterwards.

The lawsuit is the latest action against a leading figure in the cryptocurrency industry, which faced a reckoning last year amid market volatility. It occurs when regulators warn banks and investors about their exposure to the unregulated sector.

New York Attorney General Letitia James is seeking damages, restitution and devolution. Additionally, she is trying to ban Mashinsky from doing business in New York or serving as an executive or director of a company.

“The law makes it clear that making false and unsubstantiated promises and misleading investors is illegal,” James said in a statement on Thursday.

James alleges Mashinsky touted Celsius as safer than a bank and said it would generate high returns by making low-risk secured loans to established institutions and cryptocurrency exchanges, among others.

As Celsius grew, it struggled to generate enough revenue to pay the high returns and “moved into significantly riskier investments, extending hundreds of millions of dollars in unsecured loans and investing hundreds of millions of dollars in decentralized financial platforms. unregulated”, alleges the lawsuit. When faced with losses, Mashinsky hid them and continued to promote the platform’s security to recruit new investors.

James’ office points out that among the risky investments Mashinsky made included $1 billion in loans to Alameda Research, the hedge fund backed by FTX founder Sam Bankman-Fried. By extending many of the loans, Celsius accepted the FTX token, FTT, as collateral. The value of the FTT fell, leaving collateral on any outstanding loans worthless. It is unclear how much of the $1 billion debt was still outstanding at the time.

Celsius is facing numerous lawsuits and investigations stemming from its collapse last July.

Source: CNN Brasil

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