Federal prosecutors in New York have unveiled seven charges against Alexander Mashinsky, the founder and former CEO of bankrupt digital asset lender Celsius Network LLC, including securities fraud, commodities fraud, and wire fraud. The criminal charges levied by the Department of Justice (DoJ) coincided with a string of civil suits filed the same day against Mashinsky and Celsius by the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission (FTC).
Damian Williams, the United States Attorney for the Southern District of New York, and Christie M. Curtis, the Acting Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), unsealed the indictment on July 13, which charged Mashinsky and Roni Cohen-Pavon, Celsius’s former Chief Revenue Officer, with conspiracy, securities fraud, market manipulation, and wire fraud for illicitly manipulating the price of CEL, Celsius’s native token.
Mashinsky was arrested on Thursday, pleaded not guilty, and was released on a $40 million bond. He vehemently denies the charges.
The DoJ’s criminal charges, and the various civil suits faced by Celsius and Mashinsky, come from the collapse of the digital asset lender on June 12, 2022, when it announced it was halting all customer withdrawals from the platform. This left hundreds of thousands of customers unable to access their funds. Celsius filed for Chapter 11 bankruptcy on July 13, 2023.
“Over the course of the past year, we have worked quickly to get to the bottom of what led to Celsius’s collapse and to understand how a platform that advertised itself as the ‘safest place for your crypto’ could have left investors holding billions of dollars in losses. Today we have the answer,” U.S. Attorney Damian Williams said.
“This case, like the others my Office has recently announced alleging fraud in the crypto economy, may appear complicated. But the message we send today is quite simple: if you rip off ordinary investors to line your own pockets, we will hold you accountable. Whether it’s old-school fraud or some new-school crypto scheme, it doesn’t matter one bit. It’s all fraud to us. And we’ll be here to catch it.”
FBI Acting Assistant Director in Charge Christie M. Curtis echoed this sentiment and, while reiterating the charges against Mashinsky and Cohen-Pavon, also emphasized that “the FBI will continue to ensure that anyone committing fraud and deceiving the public through the misrepresentations of a business’s financial standing or practice is held accountable.”
The news of the criminal charges broke the same day as several top U.S. regulators filed civil suits, variously against Celsius, its former CEO, and other related parties.
SEC suit
The SEC filed its lawsuit with the U.S. District Court for the Southern District of New York, levying several different fraud and misrepresentation accusations, as well as one count of the unregistered sale of securities.
The SEC claims that from March 2018 through June 2022, Celsius and its former CEO “falsely promised investors a safe investment with high returns through its ‘Earn Interest Program,’ they misled investors about the financial success of Celsius’ business, and they fraudulently manipulated the price of Celsius’ own crypto asset security.”
The SEC charges include the unregistered offer and sale of crypto asset securities through Celsius’ lending program, making false and misleading statements, including misrepresenting the safety of consumer assets and falsely representing that it did not engage in directional trading, and engaging in market manipulation.
The latter accusation relates to Celsius’ CEL token, of which the SEC states, “Celsius and Mashinsky undertook a secret plan to increase artificially CEL’s market price by buying more CEL than they were admitting publicly.”
The regulator seeks civil penalties, appropriate relief, disgorgement of profits, and a ban on Mashinsky from engaging in digital asset-related activities or securities.
CFTC suit
Also, on July 13, the CTFC charged Mashinsky and Celsius Network with fraud and material misrepresentations, specifically the false touting of high profits and security to induce customers to deposit their digital asset commodities on the platform.
The complaint also alleges Celsius acted as an unregistered commodity pool operator (CPO) and Mashinsky operated as an unregistered associated person of a CPO—Celsius agreed to resolve their part of the complaint by imposing a permanent injunction prohibiting future violations of the Commodity Exchange Act (CEA).
The CFTC is seeking restitution, disgorgement, civil monetary penalties, trading and registration bans, and a permanent injunction against further CEA and CFTC regulations violations.
“This case is the CFTC’s first against a digital asset lending platform, and it demonstrates the agency will not shy away from ensuring the law is enforced in the digital asset arena,” said the CFTC’s Director of Enforcement Ian McGinley of the case.
The CFTC’s civil suit was not unexpected, as earlier this month, it was reported that investigators from the regulator had concluded that Celsius Network and Mashinsky broke U.S. rules before filing for bankruptcy and should have registered with the CFTC.
FTC suit
In the third civil suit to be filed Thursday, The FTC alleged that Celsius Network and Mashinsky “duped consumers” and made misrepresentations to the market.
“They failed to maintain enough liquid cryptocurrency to allow all customers to withdraw their crypto on demand,” the complaint claims. “Defendants concealed these facts from the public and falsely touted Celsius as a safe alternative to banking—even though it was anything but.”
However, later on Thursday, the FTC announced a settlement with Celsius, which included a $4.7 billion fine and a ban from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets.
Earlier troubles
Thursday’s civil suits and criminal charges are just the latest and most serious actions against the bankrupt digital asset lender and its founder and CEO.
In January, the New York Attorney General’s (NYAG) Office sued Mashinsky, alleging he 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.
NYAG Leticia James said at the time that “as the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin.”
In a filing with the court in May, Mashinsky responded to the NYAG’s allegations, describing them as “baseless” and asking the court to dismiss the suit.
A judgment has yet to be reached, and the case is ongoing.
As the crackdown on crypto-cowboys has intensified, things have gone from bad to worse for Mashinsky, and now, much like the embattled former CEO of FTX Sam Bankman-Fried, it’s hard to see how he escapes substantial fines and jail time.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
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