The bankrupt crypto exchange Celsius was hit with a deluge of lawsuits by federal agencies on Thursday as the Department of Justice leveled seven criminal counts against ex-CEO Alex Mashinsky.
The Securities and Exchange Commission, Federal Trade Commission, and Commodity Futures Trading Commission all filed lawsuits against the crypto company for allegedly misleading investors. The company's founder, Mashinsky, was reportedly arrested following a probe into the failure of the company, according to Bloomberg.
The SEC claimed in a Thursday filing that Mashinsky and the company "raised billions of dollars from investors through unregistered and fraudulent offers and sales of crypto asset securities." The complaint also alleges that Celsius deceived investors about its success to acquire more of them, and that it manipulated the price of its CEL cryptocurrency.
The agency took particular aim at the company's Earn program, which offered investors interest payments if they would deposit cryptocurrency on the platform. The regulator said the program ran afoul of securities laws and that it was all based on risky bets that both select employees and Mashinsky were aware of, despite the latter's constant affirmations that the company was fine.
"Celsius could not consistently generate the revenue needed to make the required interest payments to investors with respect to the Earn Interest Program," the filing read. "The company engaged in risky trading practices and made uncollateralized loans to try to generate the necessary revenue, putting the entire Celsius enterprise at grave risk."
The Department of Justice hit Mashinsky with seven charges, including securities fraud, commodities fraud, and wire fraud. The charges stem from statements made by Mashinsky and former Celsius Chief Revenue Officer Roni Cohen-Pavon about the company that the DOJ alleges they knew were false. The Justice Department also claimed that Mashinsky and Cohen-Pavon were selling off their own holdings of the company's cryptocurrency, CEL, while artificially inflating its value.
In a joint press conference with representatives from the DOJ, SEC, and CFTC, the U.S. Attorney for the Southern District of New York Damian Williams added that the Justice Department entered into a non-prosecution agreement with Celsius in which it accepted its role in the fraudulent schemes allegedly conducted by Mashinsky and Cohen-Pavon.
Williams said during the press conference that the charges against Mashinsky and Cohen-Pavon should serve as a notice for people committing crimes in the crypto space.
"Every time we announce a new action, we're trying to reinforce the message that if people cross the line, they're going to get caught," Williams said.
Celsius was founded by Mashinsky in 2018 and became popular for offering users yields of up to 18% for depositing crypto on the platform. Last June, as customers complained that they were having trouble withdrawing funds, Mashinsky told doubters on Twitter to stop spreading "FUD," or fear, uncertainty, and doubt. Days later, the company froze all customer withdrawals. By July, the company had filed for bankruptcy and owed its customers billions of dollars.
Fahrenheit, a consortium of crypto venture capital firms, companies, and investors, won a bid to acquire Celsius's assets in May. The group had plans to make a new public company with the firm's decentralized finance holdings, $500 million in cryptocurrencies, and its crypto mining assets.
This story has been updated to include comments from a DOJ, FBI, SEC, and CFTC joint press conference on Thursday.
