The former CEO of bankrupt crypto lender Celsius Network Ltd., Alex Mashinsky, has been charged with fraud by the U.S. Department of Justice (DoJ) and sued by three regulatory agencies over the company’s collapse.
Apart from the DoJ, Celsius and Mashinsky are also facing a barrage of lawsuits and allegations from various U.S. agencies, including the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC).
In January 2023, Letitia James, the New York Attorney General, filed a lawsuit against Mashinsky, the platform’s founder.
The lawsuit alleged that Mashinsky had misled investors regarding the company’s financial well-being before the bankruptcy filing.
vehemently denied these claims, referring them as “baseless” and attributing them to online misinformation.
Department of Justice (DoJ) Charges: Mashinsky and Others Accused of Securities Fraud and Conspiracy
Mashinsky and several others are facing multiple charges filed by the Department of Justice (DoJ), which include securities fraud, commodities fraud, wire fraud, and conspiracy.
The DoJ claims that Mashinsky and Celsius Chief Revenue Officer Roni Cohen-Pavon engaged in a long-term scheme to deceive customers regarding the actual market value of the company and their interest in CEL.
Furthermore, the DoJ alleges that the marketing materials employed by the firm portrayed Celsius as a “modern-day bank.”
However, according to the DoJ’s accusations, Mashinsky operated Celsius as a high-risk investment fund, misleading customers and luring them into becoming unwitting investors in a far riskier and less profitable business than it was portrayed to be.
SEC Files Lawsuit Alleging Securities Fraud by Mashinsky and Firm
On the same day, the Securities and Exchange Commission (SEC) filed a against Celsius and its founder, Mashinsky, alleging securities fraud.
The court filing by the SEC includes four counts of fraud and one count of securities violation.
The SEC’s complaint argues that Celsius (CEL) and its Earn product should be classified as securities.
Before its collapse last summer, the platform enticed users with high-interest rates through its Earn Interest Program, promoting it as a “secure investment with substantial returns.”
The complaint states, “Celsius offered and sold CEL and the Earn Interest Program as securities… Celsius and Mashinsky never submitted a registration statement to the SEC or had one in effect for their offers and sales of securities through the Earn Interest Program.”
The SEC accuses Celsius and Mashinsky of misrepresenting the company’s business model, misleading investors about uncollateralized loans, risky trading, and revenue distribution as interest.
These claims were allegedly false and deliberately concealed until Celsius declared bankruptcy in July 2022.
Allegations of Fraud and Settlement Reached by CFTC and FTC Against Celsius and Its Executives
The has accused the company and its CEO, Mashinsky, of running a fraudulent scheme that misled customers about the safety and profitability of their digital asset-based finance platform.
Despite worsening market conditions, Celsius continued to promote its reliability while hiding losses from customers.
The FTC with Celsius, banning the company and its affiliates from offering asset-related products or services.
The settlement also includes a $4.7 billion judgment, temporarily suspended for Celsius to return assets to consumers through bankruptcy proceedings.
The FTC former executives Leon, Goldstein, and Mashinsky for deceiving consumers into transferring cryptocurrencies to the platform.
The executives haven’t accepted the settlement, so the case will proceed in federal court.
