The former CEO of bankrupt cryptocurrency lending platform Celsius Network, Alexander Mashinsky, has been arrested and is facing a string of charges for allegedly misleading investors and manipulating the price of the company’s crypto token, the Department of Justice announced on July 13.
Mr. Mashinsky was arrested Thursday and charged with securities fraud, commodities fraud, and wire fraud for defrauding customers and misleading them about core aspects of the company he founded, including Celsius’s “success, profitability, and the nature of the investments Celsius made using customer funds,” prosecutors said.
Additionally, Mr. Mashinsky and Roni Cohen-Pavon, Celsius’s former chief revenue officer, are charged with conspiracy, securities fraud, market manipulation, and wire fraud for “illicitly manipulating the price of CEL, Celsius’s proprietary crypto token, all while secretly selling their own CEL tokens at artificially inflated prices.”
New Jersey-based Celsius Network once managed $25 billion in customer assets and billed itself as the “safest place for your crypto.”
The platform announced in June 2022 that it was pausing all customer withdrawals owing to a liquidity crisis. At the time of the announcement, the company had around $4.7 billion worth of crypto assets on the Celsius platform but none of the customers were able to access their funds.
A month later in July, Celsius Network filed for bankruptcy protection in the Southern District of New York.
Mr. Cohen-Pavon, an Israeli citizen and resident, is currently abroad. His case has been assigned to U.S. District Judge John G. Koeltl.
“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 said in a statement. “Today we have the answer.”
‘Scheme to Defraud Customers’
“Today I am announcing the unsealing of an indictment charging Celsius’s founder and CEO, Alex Mashinsky, with orchestrating a scheme to defraud customers of Celsius through a series of false claims about the fundamental safety and security of the Celsius platform, and for participating in a scheme with Celsius’s Chief Revenue Officer, Roni Cohen-Pavon, to inflate the price of Celsius’s proprietary token, CEL,” Mr. Williams continued.“This case, like the others my Office has recently announced alleging fraud in the crypto economy, may appear complicated. But the message we send today is quite simple: if you rip off ordinary investors to line your own pockets, we will hold you accountable. Whether it’s old-school fraud or some new-school crypto scheme, it doesn’t matter one bit. It’s all fraud to us. And we’ll be here to catch it,” he said.
Prosecutors allege that Mr. Mashinsky repeatedly made public misrepresentations regarding core aspects of Celsius’s business and financial condition to customers in the United States and abroad in order to encourage customers to hand over their crypto assets to the company and continue to use its services.
Some of the alleged misrepresentations made by Mr. Mashinsky included the safety of Celsius’s yield-generating activities, its profitability, the long-term sustainability of Celsius’s high rewards rates, and the risks associated with depositing crypto assets with Celsius, prosecutors said.
Prosecutors further allege that Mr. Mashinsky and others working at Celsius embarked on a years-long scheme to mislead customers and market participants regarding the market value and interest in Celsius’s proprietary crypto token by manipulating and inflating its price by purchasing the crypto token in the open market.
In some cases, Celsius used customer deposits to fund the market purchases of CEL, prosecutors said.
As a result, Mr. Mashinsky lined his own pockets with approximately $42 million in proceeds from his sales of CEL, while Mr. Cohen-Pavon reaped at least $3.6 million in proceeds from sales of the tokens, prosecutors said.
Lawyers for Mr. Mashinsky told CoinDesk that their client “vehemently denies the allegations brought” and that ”he looks forward to vigorously defending himself in court against these baseless charges.”
The Epoch Times has contacted Mr. Mashinsky’s attorney for further comment.
FTC, SEC Fine Celsius
Mr. Mashinsky’s arrest came on the same day that the Federal Trade Commission (FTC) announced it had reached a $4.7 billion settlement with Celsius and its affiliates.As part of the settlement, Celsius is permanently banned from handling consumers’ assets or offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets in the future.
However, the $4.7 billion fine will be suspended to “permit Celsius to return its remaining assets to consumers in bankruptcy proceedings.”
The FTC also charged three former Celsius executives, including Mr. Mashinsky as well as co-founders Shlomi Leon and Hanoch Goldstein, of having tricked customers into transferring cryptocurrency onto the platform by falsely promising that deposits would always be safe and available.
The co-founders have not agreed to a FTC settlement and the case against them will proceed to federal court, the FTC said.
“Celsius touted a new business model but engaged in an old-fashioned swindle,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “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.”
The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission also filed lawsuits against Mr. Mashinsky and Celsius on Thursday for allegedly violating the registration and anti-fraud provisions of the federal securities laws, making false and misleading statements to investors, and engaging in market manipulation of CEL.
The SEC complaint also seeks to bar Mr. Mashinsky from acting as an officer or director of a public company and seeks undisclosed monetary relief.
In a statement on Twitter, Celsius said it was pleased to have reached resolutions with the federal agencies as it continues to pursue a successful Chapter 11 Plan, adding that the resolutions “are not expected to impact our Plan or our ability to return value to customers.”
