Mashinsky, 57, fraudulently promoted Celsius as a safe alternative to banks, hiding that he was losing hundreds of millions of dollars on risky investments, according to a lawsuit filed Thursday by New York Attorney General Letitia James.
The civil suit seeks to prevent Mashinsky from doing business in New York and make him pay damages, restitution and disgorgement.
James’ lawsuit is the latest dark eye for the cryptocurrency industry, which has been rocked by allegations against the founder of cryptocurrency exchange FTX, Sam Bankman-Fried. The former tycoon, who has been accused of deceiving investors and causing billions of dollars in losses, pleaded not guilty on Tuesday.
Mashinsky, a native Ukrainian whose family emigrated to Israel, decided to move to New York after taking a trip to the city in 1988, he told a Forbes podcast.
“I looked around and said to myself: I’ll never go back,” he said.
Since then, he’s founded eight companies, including Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi to the New York City subway system.
Mashinsky says he created Voice over Internet Protocol (VoIP), a precursor to the ride-sharing app Uber, as well as a cryptocurrency idea that preceded bitcoin.
Mashinsky got involved in cryptocurrencies in 2017 when his venture capital fund Governing Dynamics chose blockchain firm MicroMoney as a strategic partner. He founded Celsius the same year.
During his teens, Mashinsky bought confiscated goods, such as hair dryers and VCRs, at customs auctions at Israel’s Ben Gurion Airport and resold them for profit, according to a 1999 article in the now-defunct technology publication Industry Standard.
Mashinsky at the time aspired to start a whole-body transplant business: “Give an elderly person a new body. Keep the head, keep the spine, and recreate the rest,” he said.
Cadre served in the Israeli army from 1984 to 1987, where he trained as a pilot and served in Golani infantry units, according to his personal website.
Mashinsky has raised more than $1.5 billion for various companies that have raised more than $3 billion when he and other investors retire them, according to his website, which also says he holds more than 50 patents. .
“The biggest risk is not taking it,” reads the homepage.
In hundreds of interviews, blog posts and live streams as the public face of Celsius, Mashinsky has promised his clients they will receive high returns if they deposit digital assets on his platform, with minimal risk, according to the New York Attorney General’s lawsuit.
On Thursday, neither Mashinsky nor his attorney immediately responded to requests for comment.
Celsius has promised investors yields of up to 17%, among the highest in the industry. “We take money from the rich,” Mashinsky said in the lawsuit.
By early 2022, it had amassed $20 billion in digital assets from investors. But the company has struggled to generate enough revenue to pay for the promised returns and has embarked on much riskier investments, according to the complaint.
The company made hundreds of millions of dollars in unsecured loans and invested hundreds of millions more in unregulated, decentralized financial platforms, according to the lawsuit.
Mashinsky, who wore T-shirts with slogans like “banks are not your friend,” continued to misrepresent to investors that Celsius was generating high returns from low-risk investments, according to the legal filing.
In a June 10 “Ask Mashinsky Anything” YouTube video, the entrepreneur said that “Celsius has billions in cash.” Two days later, he suspended investor withdrawals “to stabilize liquidity and operations.”
On July 13, Celsius filed for Chapter 11 protection under the Creditors Act, running a $1.19 billion deficit on its balance sheet.