Insolvent cryptocurrency lending platform Celsius is facing the possibility of a federal lawsuit after findings from the Commodity Futures Trading Commission (CFTC) accused the firm of defrauding investors out of billions of dollars. According to Bloomberg, lawyers in the enforcement section concluded that Celsius had deceived investors and should have registered with the regulator. It was also found that former CEO Alex Mashinsky had violated the law. The CFTC will make its final decision this month on whether to proceed with the lawsuit.
This is not the only regulatory action taken against Celsius, as federal prosecutors in Manhattan and the Securities and Exchange Commission (SEC) are also conducting their investigations. New York attorney Letitia James, who had previously filed a lawsuit against Mashinsky, tweeted that he had lied to investors about the risks involved, concealed the company’s deteriorating financial condition, and failed to register in New York.
The New York Attorney General’s lawsuit claimed that Mashinsky had deceived investors and caused losses of billions of dollars. The suit alleged that he had promised sustainably high returns through low-risk collateralized loans to reputable institutions and exchanges, as well as overcollateralized loans to retail borrowers. However, as the company expanded, it struggled to generate enough revenue to fulfill the promised yields on deposits. To compensate, Celsius ventured into riskier investments, extending uncollateralized loans worth hundreds of millions of dollars and investing in unregulated decentralized finance platforms.
In response to the legal troubles faced by Celsius, a court order was issued to sell over $70 million worth of altcoins, such as Bitcoin (BTC) and Ethereum (ETH), on July 5. The firm reportedly holds crypto assets worth $614.28 million in its wallets, according to Arkham Intelligence.
The investigations and potential lawsuit against Celsius highlight the ongoing need for regulatory oversight and transparency in the cryptocurrency industry. With the growing popularity of crypto lending platforms, it is crucial for investors to conduct thorough due diligence and ensure that these platforms comply with applicable regulations. The outcome of the CFTC’s final decision will likely shape the future of Celsius and could serve as a significant precedent for similar cases in the industry.