Celsius founder and revenue officer arrested on fraud charges
Alex Mashinsky, co-founder and former CEO of insolvent crypto lender Celsius, was arrested on Thursday on charges of securities fraud, commodities fraud, wire fraud, and conspiracy to manipulate the price of Celsius’ token CEL.
The arrest comes after a months-long investigation by the US Department of Justice (DOJ). The DOJ indictment was accompanied by separate lawsuits against Mashinsky and Celsius by the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission (FTC).
The SEC lawsuit alleges that Mashinsky and Celsius misled investors about the company’s financial condition and its ability to repay depositors. Additionally, they are accused of selling unregistered securities to investors in the form of crypto interest-bearing accounts (BIAs). The BIAs promised investors high returns, but the SEC said that the bankrupt lender did not have the funds to pay those returns.
In a parallel action, the CFTC filed a complaint, alleging that Mashinsky and Celsius engaged in a “scheme to defraud hundreds of thousands of customers” by mispresenting the safety and profitability of Celsius’s digital asset-based finance platform. The agency also claims that Celsius engaged in market manipulation by artificially inflating the price of CEL.
In a separate complaint, the FTC lawsuit alleges that Celsius violated consumer protection laws by making false promises to investors.
Mashinsky, who resigned as CEO in September 2022, was charged with seven criminal counts. Additionally, Celsius’ former chief revenue officer, Roni Cohen-Pavon, was accused of four criminal counts in what prosecutors described as a yearslong scheme to mislead customers.
“Mashinsky portrayed Celsius as a modern-day bank, where customers could safely deposit crypto assets and earn interest. In truth, however, Mashinsky operated Celsius asa risky investment fund, taking in customer money under false and misleading pretenses,” the indictment reads.
The lawsuit further alleges that Celsius made false and misleading statements to investors about the financial health of their business. The SEC claims that Mashinsky knew that their business was in financial trouble, but he continued to mislead investors in order to raise more money.
As crypto prices declined, he lured investors by promising that Celsius would invest it safely and pay better returns than the banks. Instead, the complaint alleges that Mashinsky used investor funds to prop up the price of CEL, Celsius’ native token.
The US regulators are seeking to hold Alex Mashinsky accountable for his alleged fraudulent, deceptive, and illegal acts. The suit asks that the court to order him to pay an unspecified number of damages, disgorge all of the assets he acquired through his misconduct, and make restitution to investors.