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

It was promised to raise the bar on compliance with the arrival of investors like the Caisse de depot et placement du Quebec (CDPQ) at Celsius Network in the fall of 2021. None of this happened, according to a civil complaint against Alex Mashinsky, the founder of the controversial insolvent cryptobank.

The move announced by New York State Attorney General Letitia James on Thursday was expected by many depositors whose cryptoassets have been frozen since last June. The entrepreneur is accused of having multiplied false declarations in addition to misleading his customers while Celsius Network lost hundreds of millions of dollars, in 2022, before its debacle.

“Alex Mashinsky was promoting Celsius as the alternative to banks while concealing that she was engaged in risky investment strategies. It promised high return, minimal risk, and that the cryptoassets would be protected like cash in a bank. These promises were misleading. »

The complaint targets the businessman since he was the “face” of the company founded in 2017 and that he multiplied appearances to promote the cryptobank – which caused Quebecers to lose 200 million. She multiplies the examples of risky business decisions and misleading statements.

Loan to Alameda Research

An example: between 2020 and 2022, Celsius Network made a series of unsecured loans for 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 charges of fraud, in the wake of the debacle of cryptocurrency exchange FTX and its sister company Alameda. The value of loans made to Alameda is now virtually nil, the complaint alleges.

The New York Attorney General’s move aims, 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 not yet been tested in court.

Celsius Network pooled deposits of cryptocurrencies, such as bitcoin. It offered loans and interest, which could sometimes reach 17%, to depositors. The plummeting cryptocurrency prices plunged it into a liquidity crisis, which paved the way for filing for bankruptcy. Nonetheless, in the two weeks before the withdrawal freeze for depositors, Mr. Mashinsky was urging cryptobank customers not to withdraw their marbles. “Fear, uncertainty and doubt” had to be ignored, he pleaded. He resigned as CEO last September.

Vows without changes

When the CDPQ and WestCap – the investment company founded by ex-Airbnb chief financial officer Laurence Tosi – injected US$400 million into Celsius Network in October 2021, the cryptobank was already under scrutiny from US authorities. Several states believed that payments made by Celsius Network and its own virtual currency constituted an offering of unregistered securities.

At the time of the investment, the Caisse dangled progress in terms of compliance within the cryptobank. The content of the complaint suggests that this did not happen. In an interview broadcast on YouTube in 2021, Mr. Mashinsky claimed that the state stock market police who had looked into the Celsius Network case had found nothing, the document points out.

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

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

Thursday, the CDPQ would not comment on the content of the complaint against Mr. Mashinsky. After admitting its error last August, the woolen stockings of Quebecers no longer publicly returned to the question. Its due diligence process is still the subject of unanswered questions. The Caisse is trying to recover money in the event of the liquidation of certain Celsius Network assets.

The Quebec pension plan manager is not the only one to have seen its foray into the cryptocurrency sector end in a fishtail. Due to the collapse of FTX, the Ontario Teachers’ Pension Plan (Teachers) wrote off its $95 million investment in the platform.