Crypto Celsius Network Founder Alex Mashinsky Sued by New York State for Fraud, Induced Invests to Deposit Billions & Promoting as a Safe Alternative to Banks But Engaged in Risk Investment Strategies
12th January 2023 | Hong Kong
Crypto Celsius Network (bankrupt) founder Alex Mashinsky had been sued by New York state for fraud (Martin Act violation), inducing hundreds of thousands of investors to deposit billions into Celsius Network and promoting Celsius Network as a safe alternative to banks but engaged in risky investment strategies. The lawsuit seeks to ban Alex Mashinsky from doing business in New York and to pay damages, restitution and disgorgement. New York Attorney General Letitia James: “The law is clear that making false and unsubstantiated promises and misleading investors is illegal. In July 2022, Celsius Network filed fo rchapter 11 bankruptcy, with senior executives reported to have sold their crypto holdings but had encouraged investors to buy on swings & low volume. Celsius Network top executives withdrew $30 million (2022 May) before suspending clients withdrawal in June 2022, with CEO Alex Mashinsky withdrawing $10 million (View Court Documents). More info below.
“ Crypto Celsius Network Founder Alex Mashinsky Sued by New York State for Fraud, Induced Invests to Deposit Billions & Promoting as a Safe Alternative to Banks But Engaged in Risk Investment Strategies “
Cryptocurrency Celsius Network Top Executives Withdrew $30 Million Before Suspending Clients Withdrawal, CEO Alex Mashinsky Withdrew $10 Million
7th October 2022 – Cryptocurrency Celsius Network top executives withdrew $30 million (2022 May) before suspending clients withdrawal in June 2022, with CEO Alex Mashinsky withdrawing $10 million (View Court Documents). In July 2022, Celsius Network (one of the largest crypto lender) had filed for chapter 11 bankruptcy, with senior executives reported to have sold their crypto holdings but had encouraged investors to buy on swings & low volume. Financial Times: “Even as the market declined and Celsius’s native token, CEL, fell from its 2021 peak of $8 to under $1 today, the company urged customers to “hold” — or keep hold of their investments rather than sell. Yet internal documents show that Leon and some of his colleagues had already sold millions of dollars’ worth of their own CEL holdings back to the company. Former employees say documents recording these sales have been requested by the US Securities and Exchange Commission.” In the filing, Celsius Network reported estimates of assets & liabilities of $1 billion to $10 billion and $167 million of cash. Celsius Network has a customer base of 1.7 million, collecting crypto deposits from investors and lending to large crypto companies. Alex Mashinsky, Co-Founder & CEO of Celsius: “This is the right decision for our community and company. We have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
Celsius Network Bankruptcy Update
Celsius Network (“Celsius” or “the Company”) today announced that it initiated voluntary Chapter 11 proceedings to provide the Company with the opportunity to stabilize its business and consummate a comprehensive restructuring transaction that maximizes value for all stakeholders. To implement the restructuring, the Company and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (“the Court”).
Members of the Special Committee of the Board of Directors said, “Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps, and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers—those who were first to act—to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”
“This is the right decision for our community and company,” said Alex Mashinsky, Co-Founder & CEO, Celsius. “We have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
Celsius to Continue to Operate
Celsius has $167 million in cash on hand, which will provide ample liquidity to support certain operations during the restructuring process. To ensure a smooth transition into Chapter 11, Celsius has filed with the Court a series of customary motions to allow the Company to continue to operate in the normal course. These “first day” motions include requests to pay employees and continue their benefits without disruption, for which the Company expects to receive Court approval. Celsius is not requesting authority to allow customer withdrawals at this time. Customer claims will be addressed through the Chapter 11 process.
New Directors to Provide Additional Leadership and Expertise
David Barse is the Founder and Chief Executive Officer of XOUT Capital, an index company, and DMB Holdings, a private family office. Mr. Barse was formerly the CEO of Third Avenue Management for 25 years, a pioneer in fundamental, bottom-up deep value and distressed investing. Alan Carr is an investment professional with over 25 years of experience building businesses, leading complex restructurings, and protecting and creating value for stakeholders. Mr. Carr is a Founder and the Managing Member of Drivetrain, LLC, a professional fiduciary services firm.
Community Update
Moments ago, we announced that Celsius voluntarily filed petitions for Chapter 11 reorganization. You will be able to find the official announcement here.
Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, Swap, and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery. Following the stated pause on June 12, 2022, we want you to know that we spent a great deal of time exploring our options. These Chapter 11 cases provide the Company with the best opportunity to stabilize the business, consummate a comprehensive restructuring transaction that maximizes value for all stakeholders, and emerge from Chapter 11 positioned for success in the cryptocurrency industry.
We apologize that communication with our teams and community has been very limited over the past few weeks, and we look forward to being able to offer greater transparency with everyone through our reorganization, which encourages dialogue with all stakeholders.
For additional information regarding Chapter 11 protection, please watch this video.
Additional information about the Chapter 11 filing, including Court documents, can be found at https://cases.stretto.com/celsius. Stakeholders with questions may call Celsius’ Claims Agent, Stretto, at +1 (855) 423–1530 (U.S.) or +1 (949) 669–5873 (international) or email [email protected]. Acting in the best interest of our stakeholders, including our entire customer community, is our top priority. We are also entering this process with the intention of emerging as a stronger company.
We thank you for your patience. It is our pleasure to serve you.
Celsius
About Celsius
Built on the belief that financial services should only do what is in the best interest of the customers and community, Celsius is a blockchain-based platform where membership provides access to curated financial services that are not available through traditional financial institutions. For additional information please visit www.celsius.network.
Alex Mashinsky, Co-founder, Chairman and CEO
Alex is one of the inventors of VOIP (Voice Over Internet Protocol) with a foundational patent dating back to 1994 and is now working on MOIP (Money Over Internet Protocol) technology.
Over 35 patents have been issued to Alex, relating to exchanges, VOIP protocols, messaging and communication. As a serial entrepreneur and founder of seven New York City-based startups, Alex has raised more than $1 billion and exited over $3 billion. Alex founded two of New York City’s top 10 venture-backed exits since 2000: one of his first companies, Arbinet, IPO’d in 2004 with a market capitalization of over $750 million; and another venture, Transit Wireless, was valued at $1.2 billion at the time of exit. Alex has received numerous awards for innovation, including being nominated twice by E&Y as entrepreneur of the year in 2002 & 2011; Crain’s 2010 Top Entrepreneur; the prestigious 2000 Albert Einstein Technology medal; and the Technology Foresight Award for Innovation (presented in Geneva at Telecom 99). As one of the pioneers of web-based exchanges, Alex authored patents that cover aspects of the Smart Grid, ad exchanges, Twitter, Skype, App Store, Netflix streaming concept and many other popular web companies. Additionally, Arbinet’s fundraising story was featured as a case study in 2001 by Harvard Business School.
S.Daniel Leon, Co-founder and Chief Strategy Officer
Daniel Leon is a business and social entrepreneur with a proven track record of growing early-stage companies and building organizations from the ground up.
Daniel has co-founded and led multiple companies and not-for-profit organizations. Before Governing Dynamics, where he is a managing partner, he was CEO of Atlis Labs, a venture-backed local discovery platform powered by real-time customer referrals. Prior to that, Daniel served as CEO of Beyon3D and chairman of HereO. He was also general manager, of GroundLink, which raised more than $30 million in funding during his tenure. He started his career as vice president with the Gallup Organization. Daniel holds a degree in Economics from Brown University. He splits his time between New York and Tel Aviv.
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