Founder and former CEO of bankrupt crypto exchange Celsius, Alex Mashinsky, was arrested on Thursday on securities fraud charges as he and the company are facing lawsuits by multiple regulators and a $4.7 billion penalty.
According to a United States Department of Justice (DOJ) filling, Mashinksy and Roni Cohen-Pavon, Celsius’ former Chief Revenue Officer have seven counts of charges brought up against them, including securities, commodities, and wire fraud, token manipulation and other fraud charges. If convicted, both of them face a decade in prison.
Mashinky allegedly deceived investors by providing false information about Celsius’ financial condition and artificially inflating the value of its native token CEL. By misrepresenting Celsius as a “safe and secure institution,” the former CEO facilitated the rapid growth of the digital lending business, making it one of the largest cryptocurrency lenders globally. During its peak period in the fall of 2021, Celsius purportedly managed around $25 billion.
SEC and CFTC charges
In a concurrent lawsuit filed in the same New York court, the Securities and Exchange Commission (SEC) made similar allegations against Celsius and Mashinsky. Additionally, SEC alleged that the company and its former CEO raised billions of dollars from investors through fraudulent and unregistered offers and sales of crypto asset securities.
Gurbir S. Grewal, Director of the SEC’s Enforcement Division, stated:
Celsius lied to investors by presenting itself as a safe investment opportunity and a chance to gain financial freedom, but, behind the scenes, the company operated a failing business model and took significant risks with investors’ crypto assets. Thousands of retail investors have experienced significant financial hardship as a result of Celsius’s and Mashinsky’s illegal conduct, and today we are holding Celsius and Mashinsky responsible for defrauding thousands of retail investors.
Likewise, the Commodities Futures Trading Commission (CFTC) brought similar charges against the crypto lender and its founder. The CFTC asserted that Celsius and Mashinsky operated an extensive commodity pool scheme involving digital asset commodities.
The derivatives regulator announced a settlement agreement with Celsius, which includes a court order permanently prohibiting the company from engaging in such activities in the future. Conversely, the CFTC will continue pursuing litigation against Mashinsky, seeking the return of customers’ assets and illegal profits, as well as imposing a civil monetary penalty. Additionally, the derivatives watchdog aims to secure a permanent ban on trading and registration for the Founder of Celsius through a court order.
Director of Enforcement Ian McGinley commented:
As companies and individuals develop new products and services utilizing digital asset commodities, they must adhere to the long-established rules prohibiting fraud in the market and comply with the registration requirements of the Commodity Exchange Act
He added:
This case is the CFTC’s first against a digital asset lending platform, and it demonstrates the agency will not shy away from ensuring the law is enforced in the digital asset arena. Innovation does not equate to immunity from compliance with the law.
FTC $4.7 billion settlement
Meanwhile, the Federal Trade Commission (FTC) announced a $4.7 billion settlement which is one of the biggest in the agency’s history. The FTC highlighted the repeated deceptions by Celsius and Mashinsky.
Celsius and its executives were accused by the FTC of providing false information to investors regarding the presence of a $750 million insurance policy covering their deposits. Additionally, they allegedly misled investors by claiming to have sufficient reserves to fulfill their obligations to customers.
Furthermore, the FTC claimed that Celsius lacked a system to monitor its assets and liabilities until mid-2021. As a consequence, the FTC imposed a $4.7 billion fine on Celsius and its affiliates. However, the FTC stated that it had reached an agreement with the companies to temporarily suspend the “judgment” to allow Celsius to return its remaining assets to customers through bankruptcy proceedings.
Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, said:
Celsius touted a new business model but engaged in an old-fashioned swindle. Today’s action banning Celsius from handling people’s money and holding its executives accountable should make clear that emerging technologies are not above the law.
