Crypto Lender Celsius’ Founder Detained and Accused of Fraud
Alex Mashinsky, founder and ex-CEO of the now-bankrupt crypto lender, Celsius Network, was taken into custody and charged with fraud, as announced by a U.S. prosecutor in New York on July 13th. Additionally, three federal regulatory agencies launched lawsuits against both Mashinsky and his former company.
Mashinsky is facing a total of seven criminal charges, including securities, commodities, and wire fraud. Similarly, former chief revenue officer of Celsius, Roni Cohen-Pavon, has been indicted on four criminal counts.
Legal representation for Mashinsky and Celsius have yet to comment, while Cohen-Pavon's legal counsel could not be immediately contacted.
Mashinsky is the latest in a line of cryptocurrency industry leaders facing indictments. Sam Bankman-Fried, the founder of FTX, was charged with fraud, maintaining a plea of not guilty.
The Manhattan U.S. Attorney's Office will be conducting a press conference to shed more light on the charges against Mashinsky and Cohen-Pavon.
Last year in July, Celsius sought Chapter 11 bankruptcy protection following a rush of withdrawal requests from customers amidst falling crypto prices. Many clients have been unable to retrieve their funds for over a year.
Both Mashinsky and Cohen-Pavon are accused of market manipulation involving the company's cryptocurrency, Cel. Further allegations include a fraudulent scheme to manipulate the cryptocurrency's price and wire fraud linked to the token manipulation. The indictment suggests Mashinsky personally profited around $42 million from selling his Cel holdings.
On the same day, the U.S. Securities and Exchange Commission (SEC) initiated a lawsuit against Mashinsky and Celsius, as per court documents. The allegations accuse the firm and its founder of raising billions through unregistered crypto securities sales, misleading investors regarding the company's financial health.
Alongside the SEC, other regulators filing lawsuits on Thursday, alleged Mashinsky and Celsius falsely represented their company as safe - similar to a conventional bank - while taking increasingly risky actions to fulfill high yield promises on customer deposits.
Despite suffering significant losses as clients hastened to withdraw funds, Mashinsky and Celsius continued to insist on the company's financial stability and ability to fulfill withdrawal requests.
As the crypto industry experienced a spate of bankruptcies due to falling token prices, amidst high interest rates and persistent inflation, Celsius was among the first to file for bankruptcy.
Crypto lenders like Celsius experienced rapid growth as cryptocurrency prices escalated during the COVID-19 pandemic. Despite promising investors high interest rates and easy loan access, the SEC alleges Celsius was engaged in "risky trading practices" and made uncollateralized loans, contrary to their claims.
The company also falsely stated it had raised $50 million from its initial token sale and boasted of having 1 million active users when in reality, it had about half that number, many of whom were inactive.
Further compounding Celsius' woes, the U.S. Commodity Futures Trading Commission and the Federal Trade Commission also filed lawsuits against the company and Mashinsky. The FTC announced a settlement with Celsius that includes a permanent ban on handling customers' assets.