UPDATED: 13 JUL 2023 01:41 PM EST
U.S. authorities on Thursday arrested Alex Mashinsky, the former CEO of failed crypto lending platform Celsius Network, on fraud charges while regulators levied a host of allegations of their own against him and other executives.
In the latest sign that the federal crackdown on crypto is still unfolding, prosecutors alleged in a criminal complaint filed in the Southern District of New York that Mashinsky, 57, "orchestrated a scheme to defraud customers" while inflating the price of Celsius's token, CEL, as he dumped his own holdings. He was arrested in New York City, SDNY spokesperson Nicholas Biase confirmed.
“Celsius was taking far greater risks with customers’ money than Mashinsky advertised,” U.S. Attorney Damian Williams said during a press conference, adding that the crypto founder was selling “huge quantities” of CEL on the market despite telling his customers otherwise.
Those transactions lined “his own pockets to the tune of $42 million,” Williams said.
The Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission also filed charges against Mashinsky. The FTC’s charges, which were levied against two other Celsius co-founders as well, came as the agency struck a $4.7 billion pending settlement deal with Celsius that bars it from handling customer assets.
Jonathan Ohring, an attorney representing Mashinsky, said in an email that the former Celsius CEO “vehemently denies the allegations” and “looks forward to vigorously defending himself in court against these baseless charges.”
While crypto executives and lobbyists are already up in arms about the SEC’s policing of the $1 trillion market, the Celsius charges signal that the authorities are far from done — even after taking aim at some of the biggest names in the market, such as Binance, Coinbase and Kraken.
SEC Enforcement Director Gurbir Grewal said at the press conference that the charges offer another example of why crypto companies must come into compliance with U.S. securities laws. Wall Street’s top regulator has sparred repeatedly with digital asset platforms like Coinbase and Binance, which have argued that crypto assets can’t comply with existing market rules and need tailored regulation.
The Celsius case “provides yet another stark reminder of the consequences of non-compliance in the crypto markets,” Grewal said.
Celsius was one of several high-flying crypto companies that collapsed last year as contagion ripped through the markets. The company, founded in 2018, was best known for offering investors a way to “lend” their crypto assets in return for interest payments that could be as high as 17 percent, a program that Celsius billed as the “safest place for your crypto,” according to authorities. Investors piled in. Balances in Celsius’s Earn Interest Program exceeded $13 billion as of August 2021, according to the SEC.
But prosecutors allege that the reality was different from what Mashinsky and the company presented to the public. Behind the scenes, Celsuis was making risky investments and uncollateralized loans to try to keep up with the interest rate obligations, an effort that ultimately led to its downfall, the SEC said in its complaint.
Mashinsky "portrayed Celsius as a modern-day bank, where customers could safely deposit crypto assets and earn interest," Williams wrote in the criminal indictment. "In truth, however, [Mashinsky] operated Celsius as a risky investment fund, taking in customer money under false and misleading pretenses and turning customers into unwitting investors in a business far riskier and far less profitable than what [he] had represented."
Separately, in 2018, Celsius created CEL, which the SEC alleged is a security.
Authorities allege that soon after, Mashinsky and former Celsius Chief Revenue Officer Roni Cohen-Pavon began misleading the public and market about the value and interest in CEL so they could each sell the token at inflated prices.
The two allegedly did so by having the company spend hundreds of millions of dollars buying CEL in the open market, in some cases, even using customer deposits to do so, according to the indictment.
Sam Sutton contributed to this report.
