Former Celsius CEO, Alex Mashinsky, was arrested on 13 July, following charges laid by the US Department of Justice including securities, commodities, and wire fraud for defrauding customers and misleading them about core aspects of the company he founded, including Celsius’s success, profitability, and the nature of the investments Celsius made using customer funds.
Celsius expanded rapidly following its launch in 2018, with its former CEO assuring customers and investors that the business was a safe alternative to traditional banks. The firm was also well-known for its sky-high interest rates of up to 17% per year. At its peak, Celsius had 1.7 million users globally and controlled nearly USD$25B worth of crypto assets. This was until its collapse in mid 2022, which resulted in the company filing for bankruptcy.
Mashinsky, along with the former CEO and chief revenue officer, Roni Cohen-Pavon, are further charged with conspiracy, securities fraud, market manipulation, and wire fraud for illicitly manipulating the price of CEL, Celsius’s proprietary crypto token, all while secretly selling their own CEL tokens at artificially inflated prices.
Mashinsky has denied all charges, with his legal counsel reporting to the CNBC:
Alex vehemently denies the allegations brought today…he looks forward to vigorously defending himself in court against these baseless charges
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) also announced charges against the former CEO and Celsius, accusing them of scheming to defraud investors.
The SEC alleges that Celsius and Mashinsky, among others:
Raised billions of dollars from investors through unregistered and fraudulent offers and sales of crypto asset securities including its Earn Interest Program
Falsely promised investors a safe investment with high returns through its Earn Interest Program
Misled investors including CEL holders about the financial success of Celsius
Fraudulently manipulated the price of the CEL token
Celsius reportedly used phrases such as ‘Pour Yourself a Cup of Profits’ and ‘Profits in your Pocket’ to promote its sky-high interest rate to users while avoiding an explanation of how such rates were possible. Even when customers rushed to withdraw their funds, the company and its executives allegedly maintained that the business was financially healthy, claiming that it did not engage in risky practices despite having made uncollateralized loans.
The bankrupt Celsius group is cooperating with Federal authorities and has also agreed to a USD$4.7B suspended settlement with the Federal Trade Commission (FTC), the civil antitrust law and consumer protection regulator, which is also pursuing action against the firm's co-founders. This marks one of the biggest FTC settlements ever. However, the settlement will not be paid until customer assets are returned.
Mashinsky has been released pending trial, with a USD$40M bond secured by his personal property in Manhattan and a bank account. Mashinsky now faces a lengthy legal battle as regulators continue to target alleged fraud and misconduct during the last crypto bull run.