July 13 (Portal) – Alex Mashinsky, the founder and former CEO of bankrupt cryptocurrency lender Celsius Network, has been arrested and charged with fraud, a US prosecutor in New York said on Thursday, while three federal regulators indicted him and his company.
Mashinsky, 57, was charged with seven felonies – including securities fraud, commodities fraud and wire fraud – while Celsius’ former chief financial officer Roni Cohen-Pavon was charged with four felonies, according to the indictment, which was released on Thursday.
Attorneys for Mashinsky and Celsius did not immediately respond to requests for comment, and Cohen-Pavon’s attorney was not immediately available.
Mashinsky is one of several crypto moguls to be indicted, another blow to the industry which is facing a reckoning after a collapse in crypto prices led to the collapse of several companies including exchange giant FTX. Its founder, Sam Bankman-Fried, was charged with fraud last year and has pleaded not guilty.
The US Attorney’s Office in Manhattan said it will hold a news conference to provide details of the charges against Mashinsky and Cohen-Pavon.
“WINNINGS IN YOUR POCKET”
Celsius filed for Chapter 11 bankruptcy protection last July after customers rushed to withdraw deposits as crypto prices plummeted. Many have not had access to their funds for more than a year.
Mashinsky and Cohen-Pavon were charged with market manipulation of the New Jersey-based company’s crypto token known as Cel, as well as a fraudulent scheme to manipulate the price of the cryptocurrency and wire fraud related to the manipulation of the token, according to the indictment.
Prosecutors claimed that Mashinsky also personally raked in proceeds of approximately $42 million from the sale of his Cel token holdings.
In a related development, the U.S. Securities and Exchange Commission (SEC) sued Mashinsky and Celsius, claiming he and his company raised billions of dollars by selling unregistered crypto securities and telling investors about the cryptocurrency, according to a court filing Thursday Financial situation deceived the privately held company.
The SEC, along with other regulators that also filed lawsuits Thursday, accused Mashinsky and his company of touting Celsius as safe — similar to a traditional bank — despite taking increasingly risky moves to deliver promised high returns on customer deposits.
Celsius used emails with phrases like “Pour yourself a cup of profits” and “Profits in your pocket” to promote its interest-rate program, which promised investors returns of up to 17%, according to the SEC.
While the company lost millions of dollars as customers scramble to withdraw funds, the then-CEO and Celsius continued to claim the company was financially sound and had enough funds to pay for withdrawals, regulators said.
Celsius was among the first in a string of bankruptcies in the cryptocurrency sector last year as token prices plummeted on the back of rising interest rates and stubbornly high inflation. It filed for bankruptcy shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did the same.
Crypto lenders like Celsius grew rapidly as crypto prices soared during the COVID-19 pandemic. They promised depositors easy access to credit and high interest rates, then lent tokens to institutional investors hoping to cash in on the difference.
The SEC said Celsius had engaged in “risky trading practices” and made unsecured loans, although it told investors it hadn’t. The company also falsely claimed to have raised $50 million from the initial token sale and claimed to have 1 million active users, when in reality it only had around 500,000 depositors, many of which were no longer active the SEC.
The US Commodity Futures Trading Commission and the Federal Trade Commission also sued Celsius and Mashinsky. The FTC said it reached a settlement with Celsius that permanently bans it from handling client assets.
The lawsuits from regulators pose a number of additional challenges for Celsius Network and its founder. In January, the New York State Attorney General sued Mashinsky, alleging that he defrauded investors of billions of dollars in digital currency by concealing the poor health of the lending platform.
The crypto industry has been on even more shaky ground since the SEC’s lawsuits against major crypto exchanges Binance and Coinbase Global (COIN.O) last month raised the risk of further regulatory challenges for the sector.
A serial entrepreneur, Mashinsky has founded eight companies, including telecommunications provider Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi for the New York City subway.
Reporting by Niket Nishant in Bengaluru, Hannah Lang in Washington and Elizabeth Howcroft in London; additional reporting by Chris Prentice in New York; Edited by Shinjini Ganguli, Chizu Nomiyama and Jonathan Oatis
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