Celsius Network’s Alex Mashinsky arrested, company sued by SEC, CFTC, FTC

Alex Mashinksy, co-founder and former CEO of distressed cryptocurrency lender Celsius, was arrested Thursday following an investigation into the company’s collapse, the U.S. Department of Justice (DOJ) said.

Mashinsky and others were indicted on seven counts, including securities fraud, commodities fraud, wire fraud, and conspiracy to manipulate the price of Celsius token CEL.

The lending platform filed for bankruptcy in July 2022, and cryptocurrency consortium Fahrenheit recently won a bid to acquire its assets. In January, New York Attorney General Letitia James sued Mashinsky, accusing him of misleading investors about the company’s health leading to its bankruptcy filing. Mashinsky later called the accusations “baseless” and said he was informed by misinformation online.

The DOJ accused Mashinsky and Roni Cohen-Pavon, the company’s chief revenue officer, of orchestrating a “year-long scheme to mislead customers” about the market value of the company’s value and interest in CEL. The indictment adds that Mashinsky made false and misleading public statements about his CEL sales. Cohen-Pavon was also arrested Thursday, according to a Bloomberg report.

“Mashinsky described Chelsea as a modern bank where customers can securely deposit cryptocurrency assets and earn interest. “In reality, however, Mashinsky operated Celsius as a risky investment fund, defrauding customers of their funds under false and misleading pretenses,” the indictment said, adding that Masinsky was involved in loan collateral, counterparty defaults, and regulatory investigations. He added that it misled investors.

Meanwhile, the SEC accused the company and Masinsky of securities fraud in a lawsuit filed the same day. In the complaint, the SEC alleged that CEL and Chelsea’s interest earning programs constituted securities.

“In this case, Chelsea offered and sold CEL and the Interest Earning Program as securities….Celsius and Mashinsky did not file a registration statement or valid registration with the SEC for the offering and sale of securities through the Interest Earning Program. “I have never submitted a letter.” Bulman 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 digital asset-based financial platforms.” Despite worsening 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 that the company violated federal commodity regulations, committed fraud, failed to register as a commodity pool operator and failed to provide relevant disclosure documents.

“Defendants assured customers that Celsius maintained sufficient reserves to meet its customers’ obligations,” the FTC said. The company was accused of violating the Federal Trade Commission Act “in connection with the marketing and sale of cryptocurrency lending and custody services.”

The FTC announced that it had reached a settlement with Celsius Network that “permanently prohibits the handling of consumer assets” and “blocks the offering, marketing or promotion of any products or services that can be used for deposits, exchanges, investments or transactions.” Or withdraw your assets.”

The FTC also charged former executives Shlomi Daniel Leon, Hanoch “Nuke” Goldstein, and Mashinsky with tricking consumers into transferring cryptocurrency to the platform. Regulators said the three executives did not agree to the settlement and that litigation against them would proceed in federal court.

“The companies also agreed to a $4.7 billion judgment, which will be stayed to allow Celsius to return remaining assets to consumers in the bankruptcy proceedings,” the FTC said.

Attorneys for Mashinsky, Celsius and the SEC did not immediately respond to CoinDesk’s request for comment.

Jack Schickler and Amitoj Singh contributed reporting.

Update (July 13, 13:20 UTC): Added the CFTC, the FTC filed suit, and has more details throughout.

Update (13 July 13:54 UTC): Add details of DOJ prosecution.

Update (13 July 14:19UTC): Adds FTC settlement and details throughout.