Compliance on Celsius Network |  The arrival of investors like the CDPQ did not prevent the deception

Compliance on Celsius Network | The arrival of investors like the CDPQ did not prevent the deception

The level of compliance was promised to be raised with the arrival of investors such as the Caisse de Depot et Placement du Quebec (CDPQ) to the Celsius Network in the fall of 2021. None of this happened, according to a civil lawsuit against Alex Mashinsky, the founder of the controversial insolvent crypto bank.

The move announced Thursday by New York State Attorney General Letitia James was expected by many depositors whose crypto assets had been frozen since last June. The businessman is accused of having multiplied false statements in addition to deceiving his clients while Celsius Network lost hundreds of millions of dollars, in 2022, before his debacle.

“Alex Mashinsky was promoting Celsius as the alternative to banks while hiding that it was involved in risky investment strategies. He promised high returns, minimal risk, and that crypto assets would be protected like cash in a bank. These promises were misleading. »

The complaint points to the businessman since he was the “face” of the company founded in 2017 and which multiplied appearances to promote the crypto bank – which caused Quebecers to lose 200 million. Multiply the examples of risky business decisions and misleading statements.

Loan to Alameda Research

Case in point: Between 2020 and 2022, the Celsius Network made a series of unsecured loans of around $1 billion to Alameda Research, a cryptocurrency brokerage firm co-founded by Sam Bankman-Fried. The former virtual currency rising star has been indicted, including on fraud charges, in the wake of the debacle of cryptocurrency exchange FTX and its sister company Alameda. The value of the loans made to Alameda is now practically nil, the complaint alleges.

The New York Attorney General’s action is intended, among other things, to prevent Mr. Mashinsky from doing business in the state and to make him pay damages.

The amount claimed is not specified. The allegations have yet to be proven in court.

Celsius Network groups deposits of cryptocurrencies, such as bitcoin. It offered loans and interest, sometimes as high as 17%, to depositors. The plummeting prices of cryptocurrencies plunged it into a liquidity crisis, paving the way for it to file for bankruptcy. However, in the two weeks leading up to the withdrawal freeze for depositors, Mr. Mashinsky urged the crypto bank’s clients not to withdraw their marbles. “Fear, uncertainty and doubt” had to be ignored, he pleaded. He resigned as CEO last September.

votes unchanged

When CDPQ and WestCap, the investment company founded by former Airbnb CFO Laurence Tosi, injected $400 million into the Celsius Network in October 2021, the crypto bank was already under scrutiny by US authorities. Several states believed that the payments made by the Celsius Network and its own virtual currency constituted an offer of unregistered securities.

At the time of the investment, Caisse posted progress in terms of compliance within the crypto bank. The content of the complaint suggests that this did not happen. In an interview broadcast on YouTube in 2021, Mashinsky claimed that the state stock police officers who had investigated the Celsius Network case had found nothing, the document underlines.

According to the New York Attorney General, this was just one example of many where the contractor hid things.

“The Prosecutor’s Office has never offered a ‘thumbs up’ [thumb up] or indicated ‘no problem,’” she says.

Contrary to the December 3, 2021 statement, many regulators were actively investigating, and continue to investigate, the conduct of Celsius.

Letitia James, New York Attorney General

On Thursday, the CDPQ declined to comment on the content of the complaint against Mr. Mashinsky. After admitting his mistake last August, Quebecers’ wool stockings no longer publicly returned to the issue. Its due diligence process continues to be the subject of unanswered questions. La Caisse is seeking to recover money in the event of the liquidation of certain Celsius Network assets.

The Quebec pension plan administrator is not the only one who has seen his foray into the cryptocurrency sector end in a fish tail. Due to the collapse of FTX, the Ontario Teachers’ Pension Plan (Teachers) canceled its $95 million investment in the platform.

More information

  • 9 billion dollars
    This was Celsius Network’s liability at the end of November. Customer deposits account for approximately half of this amount.

    source: New York State Courts

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