Founder of Celsius, Alex Mashinsky, Arrested and Accused of Fraud Charges

Prosecutors claim that the founder deceived investors, leading them to invest billions of dollars into the cryptocurrency lending platform.

On Thursday, Alex Mashinsky, the founder and former CEO of the bankrupt cryptocurrency lender Celsius Network, entered a plea of not guilty to fraud charges levelled against him by the United States. The charges accuse Mashinsky of deceiving customers and artificially inflating the value of his company’s proprietary crypto token.

Additionally, three federal regulatory agencies filed lawsuits against Mashinsky and Celsius in relation to the case.

The indictment, which was unsealed earlier that day, outlines seven criminal counts against Mashinsky, including securities fraud, commodities fraud, and wire fraud.

Accompanying the indictment, multiple lawsuits were filed against Mashinsky and Celsius by the U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission (FTC).

In July 2022, Celsius, the lending platform, filed for bankruptcy, and recently, crypto consortium Fahrenheit secured the bid to acquire its assets. New York Attorney General Letitia James previously sued Mashinsky in January, accusing him of misleading investors regarding the company’s financial state before the bankruptcy filing. Mashinsky vehemently denied the allegations, labelling them as “baseless” and influenced by online misinformation.

The Department of Justice (DOJ) charged Mashinsky and Celsius Chief Revenue Officer Roni Cohen-Pavon with orchestrating a long-term scheme to deceive customers about the company’s market value and interest in CEL. The indictment also accused Mashinsky of making false public statements about his own sales of CEL. Cohen-Pavon was reportedly arrested on Thursday, according to Bloomberg.

Describing Celsius as a safe haven for depositing cryptocurrency assets and earning interest, Mashinsky allegedly operated it as a risky investment fund, misleading customers about collateralised loans, defaulting counterparties, and regulatory scrutiny, as stated in the indictment.

The DOJ confirmed that Celsius reached a non-prosecution agreement, taking responsibility for its role in the alleged fraudulent scheme and cooperating with authorities.

Simultaneously, the SEC filed a lawsuit accusing Celsius and Mashinsky of securities fraud. The SEC’s complaint stated that CEL and Celsius’ Earn product were classified as securities.

During a press conference, Gurbir Grewal, the SEC’s Enforcement Director, asserted that the defendants had misled investors, alleging the fabrication of financial information.

“Today, along with our federal partners, we’re holding Mashinsky and Celsius responsible for their lies and for their deceit,” Grewal said.

In a separate complaint, the CFTC accused the company and Mashinsky of engaging in a “scheme to defraud hundreds of thousands of customers by misrepresenting the safety and profitability of its digital asset-based finance platform.” Despite deteriorating market conditions, the company continued to “promote the safety and viability of Celsius, and failed to disclose these losses to customers,” the CFTC filing added.

The CFTC alleges the firm violated federal commodities regulations, committed fraud and failed to register as a Commodity Pool Operator and provide relevant disclosure documents.

“Defendants assured customers that Celsius maintained sufficient reserves to meet customer obligations,” said a complaint by the FTC, which accused the firm of violating the Federal Trade Commission Act “in connection with the marketing and sale of cryptocurrency lending and custody services.”

The FTC announced it had reached a settlement with Celsius Network “that will permanently ban it from handling consumers’ assets,” and block it from “offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets.”

The FTC also charged former executives Shlomi Daniel Leon, Hanoch “Nuke” Goldstein and Mashinsky with tricking consumers into transferring cryptocurrency onto the platform. The regulator said the three executives have not agreed to the settlement, and that the case against them will proceed in federal court.

“The companies also agreed to a judgement of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings,” the FTC notice said.

A lawyer for Mashinsky said: “Alex vehemently denies the allegations brought today. He looks forward to vigorously defending himself in court against these baseless charges.”

A lot of players are being sued or charged in this space, but I think the majority of people can agree that this charging was needed.