On federal allegations of defrauding hundreds of thousands of consumers by misrepresenting his company before it collapsed last summer, Alex Mashinsky, the former CEO of the insolvent cryptocurrency lender Celsius, was taken into custody on Thursday morning.
The businessman, who was born in Ukraine and was raised in Israel, is also charged with civil fraud by the Securities and Exchange Commission and the Commodity Futures Trading Commission, according to regulators. The Federal Trade Commission has also charged Mashinsky and two of his co-founders with separate counts of fraud, including Shlomi Daniel Leon and Hanoch “Nuke” Goldstein.
By deceiving consumers about the company’s profitability and the type of investments he made with their money, Mashinsky is accused by the Justice Department of participating in a vast plan to defraud customers. Additionally, they claim he secretly sold the company’s own crypto token at inflated prices while manipulating its price.
The accusations might be complex, but the message is clear: If you steal, cheat, or deceive, or if you take advantage of common investors to enrich yourself, we will hold you accountable, said Damian Williams, the U.S. Attorney for the Southern District of New York, on Thursday during a news conference. It makes absolutely no difference if it’s an old-school swindle or a modern crypto scheme. We see it all as fraud.
Mashinsky launched Celsius in 2018, and he rapidly turned it into a behemoth by marketing it as a brand-new, more reliable kind of bank. He assured consumers that the company’s “Earn” programme, which used their funds to produce investment income, would allow them to safely deposit their cryptocurrency assets and make significant returns. According to the Justice Department, Celsius had assets worth $25 billion at its peak in the autumn of 2021.
Regulators claim that Celsius was lying about its success, the riskiness of its investing techniques, its business model, and the security of customer deposits even as it gained a wave of new clients during the pandemic-driven cryptocurrency bubble. According to SEC Enforcement Director Gurbir Grewal, Mashinsky and his group “often completely fabricated their financials,” on Thursday.
Prosecutors assert that Mashinsky and the firm’s former chief revenue officer engaged in a plan to manipulate the price of Celsius’s own cryptocurrency token in order to benefit themselves. The indictment claims that Mashinsky made $42 million off of that conspiracy, while Cohen-Pavon earned $3.6 million.
Cohen-Pavon is also charged with crimes, but the Israeli citizen is still at loose and not in jail, according to the Justice Department.
A larger crypto sector crisis led to the company’s demise last summer. When clients began to rush to withdraw money from the platform in June 2022 despite Mashinsky’s assurances that their deposits were secure, Celsius blocked $4.7 billion in deposits from thousands of users.
According to Michael Brodack, who is in charge of the FBI’s criminal division in New York, the extensive crypto fraud perpetrated by the defendants ultimately came crashing down under the weight of its own lies and other fraudulent actions that were no longer able to support the Celsius platform and its products.
Separately, the FTC announced a deal with Celsius that prohibits the company from managing customer deposits and imposes a $4.7 billion fine that will be deferred until the business recoups debts from customers during the bankruptcy process.
