Alex Mashinsky, the founder and former CEO of the now-bankrupt cryptocurrency lender Celsius Network, pleaded not guilty on Thursday to fraud charges filed against him in the United States. The authorities accuse him of deceiving customers and manipulating the value of his company’s cryptocurrency token.
In addition to the criminal charges, three federal regulatory agencies filed lawsuits against Mashinsky and Celsius Network, all related to the same case. The indictment, unsealed earlier on Thursday, lists seven criminal counts against Mashinsky, including securities fraud, commodities fraud, and wire fraud.
He is among a group of cryptocurrency tycoons facing indictment, marking yet another setback for the industry, which has grappled with the collapse of various companies, including the prominent exchange FTX, due to a downturn in crypto prices. The founder of FTX, Sam Bankman-Fried, was charged with fraud last year and has entered a plea of not guilty.
At his arraignment in federal court in Manhattan, the 57-year-old Mashinsky appeared wearing a gray polo shirt and jeans, without handcuffs. U.S. Magistrate Judge Ona Wang granted his release on a $40 million bond, which his residence in Manhattan will secure. During a press conference outlining the charges, U.S. Attorney Damian Williams stated, “Whether it’s old-school fraud or some new-school crypto scheme, it doesn’t matter one bit. It’s all fraud to us.”
Legal Charges and Indictment Against Celsius Founders Alex Mashinsky and Roni Cohen-Pavon
In July 2022, Celsius, a cryptocurrency lending platform established in 2017, faced significant financial challenges and sought Chapter 11 bankruptcy protection. This occurred after many customers hurried to withdraw their deposits due to declining crypto prices. Unfortunately, many individuals encountered difficulties in accessing their funds during this period.
During the COVID-19 pandemic, crypto lenders like Celsius experienced rapid growth, capitalizing on the surging prices of cryptocurrencies. They enticed depositors with attractive interest rates and easy access to loans, subsequently lending out these tokens to institutional investors hoping to profit from the interest rate disparity.
Celsius became one of the initial casualties in a series of cryptocurrency sector bankruptcies in the past year. This was triggered by the sharp decline in token prices, influenced by increasing interest rates and persistently high inflation. Shortly before Celsius filed for bankruptcy, other companies in the cryptocurrency industry, such as Three Arrows Capital and Voyager Digital, also found themselves in similar situations.
Alex Mashinsky, the founder of Celsius, and the company’s former chief revenue officer, Roni Cohen-Pavon, faced legal charges related to market manipulation of the company’s cryptocurrency token, called Cel. The costs included allegations of a fraudulent scheme to manipulate the token’s price and wire fraud associated with the token’s manipulation. These accusations were outlined in the indictment against them.
Prosecutors have accused Alex Mashinsky, the CEO of Celsius, a cryptocurrency company, of making around $42 million by selling his holdings of the Cel token. However, Celsius itself has not been charged in this case.
During a press conference, U.S. Attorney Williams mentioned that Nuke Cohen-Pavon, a former executive at Celsius, is located outside the United States and is an Israeli citizen. However, it remains uncertain whether Cohen-Pavon will be deported or not.
Did Celsius’ Mislead Investors and Engage in Risky Practices?
The U.S. Securities and Exchange Commission (SEC) has also filed a lawsuit against Mashinsky and Celsius, claiming that they raised billions of dollars by selling unregistered crypto securities. The SEC alleges that the company misled investors about its financial status while promoting Celsius as a safe investment similar to a traditional bank. They accuse Mashinsky and Celsius of taking risky measures to fulfill promised returns, which were as high as 17%.
Celsius employed marketing emails with phrases like “Pour Yourself a Cup of Profits” and “Profits in your Pocket” to promote their interest-earning program. Despite facing significant losses as customers hurried to withdraw their funds, according to regulators Celsius and Mashinsky, they continued to assure investors that the company was financially stable and had sufficient funds to meet withdrawals.
The SEC further alleges that Celsius engaged in risky trading practices and provided uncollateralized loans, contrary to what they had communicated to investors. Additionally, Celsius falsely claimed to have raised $50 million from its initial token sale and misrepresented its number of active users, stating it had 1 million when it had around 500,000 depositors, with many no longer active.
Celsius Network Faces Legal Challenges and Regulatory Uncertainty
The U.S. Commodity Futures Trading Commission and the Federal Trade Commission have also filed lawsuits against Celsius and Mashinsky. The FTC has announced a settlement with Celsius that permanently prohibits the company from managing customers’ assets.
As part of an agreement with the Justice Department, Celsius has accepted responsibility for its involvement in the alleged schemes and has pledged to cooperate with investigators. This agreement called a non-prosecution deal, means Celsius will not face criminal charges.
Thursday’s lawsuits have added to the growing challenges Celsius Network and its founder face. Earlier this year, Mashinsky, the founder, was sued by the attorney general of New York for alleged fraud.
The cryptocurrency industry has been facing increasing uncertainty, especially after the Securities and Exchange Commission (SEC) filed lawsuits against significant crypto exchanges Binance and Coinbase Global (COIN.O) last month. These lawsuits have raised concerns about potential regulatory hurdles for the entire sector.
However, a federal court in New York held a positive development for the industry on Thursday. In a significant ruling, a judge concluded that Ripple Labs did not violate federal securities law when it sold its XRP token on public exchanges. This victory for Ripple caused the value of the XRP cryptocurrency to surge.
