Former CEO of Celsius, Alex Mashinsky, was taken into custody on Thursday on federal securities fraud charges, according to a source familiar with the matter. This arrest comes as the bankrupt cryptocurrency exchange has reached a settlement agreement with government regulators, agreeing to pay a record-breaking $4.7 billion fine. Alongside the arrest, the exchange has also been charged by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for engaging in a scheme to defraud investors out of billions of dollars. The settlement amount of $4.7 billion is one of the largest in the history of the Federal Trade Commission (FTC) and highlights the repeated deceptions perpetrated by Celsius and Mashinsky, as described by the FTC.
Charges and Potential Consequences
In addition to the securities fraud charges, Mashinsky is also facing allegations of commodities and wire fraud, as well as various charges related to securities manipulation and fraud. If convicted, both Mashinsky and his co-defendant, Roni Cohen-Pavon, could potentially face decades behind bars. Mashinsky, however, has pleaded not guilty to the fraud charges in a New York federal court.
The Misrepresentations Made by Mashinsky
According to a charging document filed by federal prosecutors, Mashinsky is accused of misrepresenting several aspects of Celsius’s operations. This includes falsely presenting the safety of Celsius’s yield-generating activities, profitability, long-term sustainability of high rewards rates, and the risks associated with depositing crypto assets with the exchange. The Securities and Exchange Commission (SEC) has also alleged that Mashinsky and Celsius “misrepresented” the company’s central business model and the risks to investors. They allegedly claimed that Celsius did not engage in risky trading and paid most, but not all, of the company’s revenue to investors. The SEC stated that none of these claims were true, revealing that Celsius had experienced significant defaults on its institutional loans, amounting to “hundreds of millions of dollars.”
The Settlement and the Definition of a Security
The settlement, announced by the FTC, will only be paid once the company is able to return the remaining customer assets through bankruptcy proceedings. It is worth noting that both the charging documents from federal prosecutors and the SEC complaint classify Celsius’s exchange token, CEL, as a security. The definition of a security and the SEC’s jurisdiction over crypto markets have been subjects of intense debate among various cryptocurrency exchanges in recent months.
Mashinsky’s counsel, Jonathan Ohring, responded to the charges by stating that Mashinsky vehemently denies the allegations and is prepared to vigorously defend himself in court against these baseless charges.
In summary, former Celsius CEO Alex Mashinsky has been arrested on federal securities fraud charges, alongside a $4.7 billion settlement agreement reached by the bankrupt crypto exchange. The charges include allegations of securities, commodities, and wire fraud, as well as securities manipulation and fraud charges. Mashinsky is accused of misrepresenting various aspects of Celsius’s operations, including the safety of yield-generating activities and the risks associated with depositing assets. The settlement will be paid once customer assets are returned in the bankruptcy proceedings, and both federal prosecutors and the SEC classify Celsius’s exchange token as a security. Mashinsky has pleaded not guilty to the fraud charges and intends to defend himself in court.
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