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Alex Mashinsky, the founder of bankrupt cryptocurrency lender Celsius Network, has been arrested by US authorities and charged with fraud and market manipulation.
Prosecutors allege that Mashinsky misled investors into pouring billions of dollars into Celsius by portraying it “as a modern bank where customers could safely deposit crypto assets and earn interest.”
An indictment released shortly after Mashinsky’s arrest on Thursday said the cryptocurrency platform, by contrast, “acted as a risky investment fund” that was far less profitable than Celsius had led investors to believe.
The criminal case launched by federal prosecutors in Manhattan added that Celsius also used some customers’ money to manipulate the market for a cryptocurrency token called CEL. This, they said, allowed Celsius to sell its own holdings of the token at prices in excess of its market value.
Celsius, currently led by a team of restructuring professionals led by former JPMorgan Chase banker Chris Ferraro, has claimed responsibility for its part in the alleged plan, according to a non-prosecution agreement with the Justice Department also announced Thursday emerges.
Mashinsky was scheduled to appear in court in New York on Thursday afternoon. Roni Cohen-Pavon, the former chief financial officer of Celsius who was also charged in the case, lives in Israel and prosecutors believed he was abroad.
Three US regulators filed parallel civil lawsuits on Thursday.
The Securities and Exchange Commission wants to fine Mashinsky and ban him from the cryptocurrency industry, while the Commodity Futures Trading Commission and the Federal Trade Commission are seeking fines.
SEC Law Enforcement Director Gurbir Grewal said his agency is acting to protect investors who are losers. “Ultimately, the defendants’ elaborate crypto scam failed on its own weight,” he said, “as their lies…” . . could no longer support the Celsius platform.”
A lawyer for Mashinsky said: “Alex vehemently denies the allegations made today. He looks forward to vigorously defending himself in court against these baseless allegations.”
Celsius did not immediately respond to a request for comment.
Celsius filed for bankruptcy last July after the crypto markets collapsed in 2022, when popular tokens like bitcoin and ether lost more than half their value.
For the previous month, it had blocked hundreds of thousands of investors from their funds in response to steadily rising withdrawal requests.
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Mashinsky was sued by New York Attorney General Letitia James in January for allegedly “defrauding hundreds of thousands of investors.” . . from cryptocurrencies worth billions of dollars”. He has denied wrongdoing.
His lawyers said in May that James’ claim was based on “baseless inferences” and that Celsius’ eventual demise was caused by a series of catastrophic, external events.
However, in the lawsuit filed Thursday, the SEC accused Celsius of engaging in “risky trading practices” and making unsecured loans to generate revenue, which “puts the entire Celsius business at great risk.” It added that Celsius “frequently paid well in excess of 80 percent of its sales to meet the company’s interest payment obligations — a business practice hidden from investors.”
The SEC added that Celsius and Mashinsky falsely claimed the platform had 1 million active users, claiming that, in contrast, the company’s own internal data showed that about 500,000 users deposited crypto assets with it.