Investigators from the Commodity Futures Trading Commission (CFTC), one of the top U.S. financial market regulators, have concluded that bankrupt digital asset lender Celsius Network and its former CEO Alex Mashinsky broke U.S. rules before the firm filed for bankruptcy last July, according to a Bloomberg News report.
Citing “people familiar with the matter,” the report states that attorneys in the regulator’s enforcement unit have determined that Celsius misled investors and should have registered with the CFTC.
If the majority of the CFTC’s commissioners agree with the investigators’ conclusions, the regulator could file a case in federal court as early as this month.
The July 5 report has yet to be officially confirmed by the CFTC, and Celsius’ attorneys have yet to comment on it, but should it prove to be true it’s likely things are about to go from bad to worse for the bankrupt lender and its former-CEO.
The Celsius collapse
In June 2022, Celsius Network froze withdrawals and announced that it was experiencing liquidity issues due to extreme market conditions. A month later, the firm announced that it was officially filing for Chapter 11 bankruptcy.
Shortly after the filing, in September 2022, the Vermont securities watchdog alleged that for several months before its collapse Celsius Network had already been insolvent and was masking its losses with a Ponzi scheme-like business model.
In its filing with the New York Bankruptcy Court, the Vermont Department of Financial Regulation wrote in support of a request by the Trustee Office to appoint an independent examiner to probe Celsius and the allegations against it.
In a less than coincidental move, the same month that the New York bankruptcy court was being told Celsius was a Ponzi-scheme, the company’s CEO Alex Mashinsky resigned—deciding not to go down with the sinking ship.
However, if Mashinsky was hoping for some peace and quiet that illusion was quickly dispelled, when in January this year the New York Attorney General’s (NYAG) Office sued the former CEO and co-founder of Celsius.
The NYAG’s office alleged Mashinsky participated in a scheme to defraud hundreds of thousands of investors by using false and misleading representations to induce them to deposit with the firm.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said NY Attorney General Leticia James, when the charges were announced. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
Attorney General James is seeking to bar Mashinsky from engaging in any business relating to the issuance, offer, or sale of securities or commodities in New York; stop him from serving as a director or officer of any company doing business in New York; and secure disgorgement, damages and restitution for investors.
If Wednesday’s report is to be believed, Mashinsky is looking at an increasingly busy court schedule in the coming year.
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