Former Celsius CEO charged with fraud in latest DOJ crypto case

Alex Mashinsky

The SEC, the CFTC and the FTC also filed lawsuits against Alex Mashinsky and his crypto lending company.

Alex Mashinsky, the former chief executive of Celsius Network Ltd., was accused by prosecutors of orchestrating a years-long scheme to mislead customers about the financial health of his failing crypto lender and manipulate cryptocurrency prices for his own profits.

The 57-year-old was arrested Thursday and charged with six counts, including wire fraud, a year to the day after Celsius filed for bankruptcy and declared a $1.19 billion deficit. The Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission also filed lawsuits against Mashinsky and the company.

Prosecutors alleged Celsius staff were forced to change rosy public comments Mashinsky made during his weekly question-and-answer sessions — “Ask Mashinsky Anything” — because the statements were “false and misleading.”

Celsius was one of several high-profile crypto firms that imploded last year. The company gained popularity by paying high interest rates on digital asset deposits. But following the collapse of the TerraUSD stablecoin and a downturn in the digital asset markets, the company was left with a giant hole in its balance sheet and was unable to meet an influx of customer withdrawals.

Celsius’s former chief revenue officer, Roni Cohen-Pavon, was also charged with four counts, including fraud. Federal prosecutors in Manhattan allege that from 2018 through June 2022, Mashinsky “orchestrated a scheme to defraud customers of Celsius Network LLC and its related entities,” according to the indictment unsealed Thursday.

Mashinky and Cohen-Pavon are also accused of manipulating the price of CEL, Celsius’s token, prompting customers to purchase it at inflated prices.

Mashinky’s lawyer didn’t immediately reply to emails seeking comment.

The price of CEL token issued by Celsius dropped about 6% to around 15 cents, according to data from CoinMarketCap, after the criminal and regulatory filings against the company and Mashinsky. It had traded as high as $8 in June 2021.

Mashinsky is the latest crypto industry figure to face charges after a market downturn exposed shady practices and in some cases, fraud, across the sector. Mashinsky, who helped start Celsius in 2017, has been under intense scrutiny from multiple government agencies since his firm filed for bankruptcy 12 months ago.

The SEC alleged that Mashinsky and his company made misleading statements to encourage investors to purchase its token, CEL, and to put money into the firm’s Earn Interest Program, which promised returns as high as 17% on users’ crypto deposits.

The regulator also accused Mashinsky of misrepresenting Celsius’s financial success to make it appear more profitable than it really was. For instance, the SEC said he falsely claimed the firm made $50 million from an initial coin offering when in actuality it raised less than 65% of its goal — something Mashinsky took steps to hide from the public.

On May 11, 2022, Celsius said on Twitter that the company “abides by robust risk management frameworks to ensure the safety and security of assets on our platform. All user funds are safe. We continue to be open for business as usual.”

But in reality, Celsius was “in dire financial shape” and company executives were communicating about “significant financial losses” at the time. On May 9, a Celsius executive had called the company “a sinking ship,” the SEC said.

FTC SETTLEMENT

The FTC on Thursday announced a settlement with Celsius shortly after filing its suit under consumer protection laws. The regulator said Celsius had agreed to a ban on handling consumer assets and a $4.7 billion fine. That fine will be suspended to allow Celsius customers to continue seeking recovery through the bankruptcy process, the regulator said in a statement. The suit against Mashinsky and other executives will continue.

New York Attorney General Letitia James was first to strike against Mashinsky, suing him in January for fraud. James accused Mashinsky of duping New York investors out of billions of dollars in crypto assets by making false and misleading statements about the lender’s safety.

The actions against Celsius mark the latest in a string of civil and criminal crypto cases brought by US authorities this year. Federal prosecutors in New York have charged a slew of industry actors for alleged misconduct — most notably FTX co-founder Sam Bankman-Fried.