Alex Mashinsky, the former CEO of Celsius Network Ltd., has been arrested and charged with multiple counts, including wire fraud, following allegations of orchestrating a scheme to deceive customers and manipulate cryptocurrency prices. The arrest comes exactly one year after Celsius filed for bankruptcy and reported a $1.19 billion deficit. Alongside the criminal charges, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, and the Federal Trade Commission have also filed lawsuits against Mashinsky and the company.
According to federal prosecutors in Manhattan, Mashinsky allegedly led a yearslong effort to defraud customers of Celsius Network and its affiliated entities. It is claimed that he compelled Celsius staff to alter public statements he had made during his weekly Q&A sessions, which were found to be false and misleading. Celsius was once a prominent crypto lender, offering high interest rates on digital-asset deposits. However, after the collapse of the TerraUSD stablecoin and a downturn in the digital-asset markets, the company faced significant financial difficulties, leading to an inability to meet customer withdrawal demands.
Roni Cohen-Pavon, Celsius's former chief revenue officer, also faces charges, including fraud. Prosecutors have accused Mashinsky and Cohen-Pavon of manipulating the price of Celsius's token, CEL, to encourage customers to purchase it at inflated prices. The price of CEL token dropped around 6% to approximately 15 cents following the criminal and regulatory filings against Celsius. It had reached a high of $8 in June 2021.
Mashinsky is the latest figure in the cryptocurrency industry to face legal action amid a market downturn that has exposed fraudulent practices within the sector. Since Celsius filed for bankruptcy a year ago, Mashinsky has been under intense scrutiny from various government agencies. The SEC alleges that Mashinsky and Celsius made misleading statements to entice investors to purchase CEL tokens and participate in the Earn Interest Program, which promised high returns on cryptocurrency deposits. Additionally, the SEC claims that Mashinsky misrepresented Celsius's financial success to present a more prosperous image of the company.
The FTC also filed a lawsuit against Celsius, under consumer protection laws, but subsequently reached a settlement. Celsius agreed to a ban on handling consumer assets and a $4.7 billion fine, which will be suspended to allow customers to seek recovery through the bankruptcy process. However, the legal action against Mashinsky and other executives will continue.
The New York Attorney General, Letitia James, previously sued Mashinsky for fraud in January, accusing him of misleading New York investors and causing them to lose billions of dollars in crypto assets. These recent actions against Celsius are part of a series of civil and criminal cases pursued by US authorities within the cryptocurrency industry this year, including the high-profile case involving FTX co-founder Sam Bankman-Fried.