In a significant development, U.S. prosecutors have charged Alexander Mashinsky, 57, the former CEO of Celsius Network, with defrauding customers and providing misleading information about the company’s operations. He has pleaded not guilty and was released on a $40 million bond. His attorney, Jonathan Ohring, stated that Mashinsky vehemently denies the allegations and looks forward to a robust defense in court.
The indictment includes securities fraud, wire fraud, and commodities fraud charges. Additionally, Mashinsky and Roni Cohen-Pavon, 36, the chief revenue officer of Celsius, were accused of manipulating the price of their crypto token, CEL, while selling their own tokens at inflated prices.
Background: Celsius was founded in approximately 2018 as a crypto asset platform that allowed its customers to earn yield on their crypto assets, take loans secured by their crypto assets, and custody their crypto assets, among other services. Celsius billed itself as the “safest place for your crypto” and urged potential customers to “unbank” themselves by depositing their crypto assets with Celsius. At its peak in the fall of 2021, Celsius purported to hold approximately $25 billion in assets. Many of these assets were crypto assets deposited by ordinary retail investors located in the United States and abroad, and not large institutions.
According to the indictment, Mashinsky portrayed Celsius as a secure platform for customers to deposit and earn interest on their crypto assets, similar to a modern-day bank. However, the truth allegedly revealed a different story, as Mashinsky operated Celsius as a high-risk investment fund, deceiving customers with false and misleading representations and turning them into unwitting investors in a significantly riskier and less profitable business than initially claimed.
Exactly one year ago today, Celsius Network, a crypto platform that, at its height, managed approximately $25 billion in customer assets, filed for bankruptcy protection in the Southern District of New York. Over the course of the past year, we have worked quickly to get to the bottom of what led to Celsius’s collapse and to understand how a platform that advertised itself as the ‘safest place for your crypto’ could have left investors holding billions of dollars in losses.
U.S. Attorney Damian Williams (link)
Celsius, along with its affiliates, is facing further legal action. The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Mashinsky and Celsius, while earlier this year, the New York attorney general’s office sued Mashinsky for fraud. The Federal Trade Commission (FTC) announced a civil settlement with Celsius and its affiliates for $4.7 billion, with payment suspended to facilitate the return of money to Celsius customers as the company is bankrupt.
The Securities and Exchange Commission (SEC) has also filed civil fraud charges against Celsius and Alexander Mashinsky. The SEC aims to permanently ban Mashinsky from operating an exchange and engaging in buying or selling cryptocurrencies. Damian Williams, the U.S. attorney for the Southern District of New York, emphasized that this indictment is another significant step in their mission to eradicate corruption in the crypto economy, urging potential customers and investors to exercise caution.
The charges against Celsius and its founders are part of a broader crackdown on crypto companies involved in fraudulent activities. This includes the arrest of Sam Bankman-Fried (SBF), the founder of the FTX platform, who has been charged with orchestrating one of the largest financial frauds in U.S. history. SBF has pleaded not guilty and is scheduled to go to trial in October. Regulators have also accused major crypto platforms Binance and Coinbase of operating illegal exchanges.
