Former Celsius CEO Alex Mashinsky has been arrested on federal securities fraud charges, along with former chief revenue officer Roni Cohen-Pavon. The Justice Department has charged Mashinsky with seven counts of fraud, alleging that he falsely represented Celsius as a safe and secure institution. This misleading portrayal led to a significant increase in Celsius’s customer base, primarily consisting of retail investors rather than large institutions.
Federal prosecutors claim that Mashinsky and Cohen-Pavon orchestrated a scheme to deceive customers and market participants about Celsius’s proprietary crypto token CEL. The U.S. Attorney’s Office for the Southern District of New York stated that Celsius became one of the largest crypto platforms worldwide, with approximately $25 billion in assets at its peak.
The case against Mashinsky and Celsius also involves allegations of defrauding and misleading customers. The Securities and Exchange Commission (SEC) has sued the company and its former CEO for deceiving customers about the core aspects of the business. Meanwhile, the Federal Trade Commission (FTC) filed a complaint stating that Celsius engaged in risky investments without informing investors when those investments failed.
As a result of the FTC’s complaint, Celsius has agreed to a proposed settlement that includes a judgment of $4.7 billion. This settlement permanently bans the company from offering, marketing, or promoting any product or service related to depositing, exchanging, investing, or withdrawing assets. Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, emphasized that today’s action demonstrates that emerging technologies are not above the law.
The New Jersey-based company marketed various cryptocurrency products and services, such as interest-bearing accounts, personal loans secured with cryptocurrency deposits, and a cryptocurrency exchange. The FTC complaint alleges that Mashinsky, Leon, and Goldstein, the company’s co-founders, promised customers that their platform was safer than banks and misrepresented the security measures in place. The former executives are accused of misappropriating $4 billion of customers’ deposits instead of safeguarding them as initially promised.
According to the FTC, Celsius deceived users by falsely claiming that they could withdraw their deposits at any time and that the company had a $750 million insurance policy for deposits. However, the company did not maintain this insurance policy and only had a small capital reserve, limiting the number of customers able to withdraw their cryptocurrency within a week’s time. It was not until mid-2021 that the platform implemented a system to track its assets and liabilities.
Following the alleged misconduct and the “pause” of customer withdrawals in June 2022, Celsius filed for Chapter 11 bankruptcy protection. The downfall of the once-prominent crypto platform highlights the importance of regulatory oversight and the need to hold executives accountable for their actions in the emerging cryptocurrency industry.
Alex Mashinsky’s arrest and the subsequent charges against him shed light on the fraudulent practices that took place at Celsius Network. The allegations of securities fraud, deception of customers, and misleading marketing tactics have led to legal action from both federal prosecutors and regulatory agencies. The proposed FTC settlement serves as a stern warning to other companies in the cryptocurrency space that dishonesty and unethical behavior will not be tolerated.