Crypto lender Celsius Network's former CEO, Alex Mashinsky, was arrested on July 13, 2023, on charges of securities fraud, commodities fraud, wire fraud, and conspiracy to manipulate the price of Celsius' token CEL. Mashinsky and Celsius Chief Revenue Officer Roni Cohen-Pavon are accused of orchestrating a "years-long scheme to mislead customers" about the market value of the company's value and interest in CEL. The U.S. Department of Justice (DOJ) indictment and the lawsuits were filed by the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission (FTC).
The Collapse of Celsius Network
Celsius Network is a lending platform that filed for bankruptcy in July 2022, and crypto consortium Fahrenheit won a bid to acquire its assets. However, the bankruptcy filing was the beginning of Mashinsky's legal troubles. In January, New York Attorney General Letitia James sued Mashinsky for allegedly misleading investors about the firm's health before the bankruptcy filing. Mashinsky later called the accusations "baseless" and said they were informed by online misinformation.
It was not just the New York Attorney General who targeted Celsius Network. The SEC accused the company and Mashinsky of securities fraud for offering and selling CEL and Celsius' Earn product as securities without filing a registration statement or having one in effect with the SEC. The CFTC accused the company and Mashinsky of engaging in a "scheme to defraud hundreds of thousands of customers by misrepresenting the safety and profitability of its digital asset-based finance platform."
The DOJ's Indictment
The DOJ indictment against Mashinsky and Celsius Chief Revenue Officer Roni Cohen-Pavon is the latest chapter in the Celsius Network saga. The indictment accuses Mashinsky of making false and misleading public statements about his own sales of CEL and misleading investors about loans being collateralized, counterparties defaulting, and regulatory scrutiny.
The DOJ also struck a non-prosecution deal with Celsius itself, as the company had accepted responsibility for its role in the allegedly fraudulent scheme, and was cooperating with the investigation.
The FTC's Complaint and Settlement
Meanwhile, the FTC accused Celsius Network and its former executives Shlomi Daniel Leon, Hanoch “Nuke” Goldstein, and Mashinsky of tricking consumers into transferring crypto onto the platform. The regulator said the three executives have not agreed to the settlement, and that the case against them will proceed in federal court. The FTC announced it had reached a settlement with Celsius Network "that will permanently ban it from handling consumers' assets" and block it from "offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets." The companies also agreed to a judgment of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings.
The collapse of Celsius Network has led to a litany of legal troubles for its former CEO and executives. The DOJ indictment and the lawsuits filed by the SEC, CFTC, and FTC show that regulators are taking a closer look at the cryptocurrency space and will not tolerate fraudulent practices. Celsius Network's downfall serves as a cautionary tale for other fintech companies to ensure they are operating in compliance with the law and treating their customers fairly.
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