The former CEO of the insolvent cryptocurrency lender Celsius, Alex Mashinsky, has been detained as he and his business are being sued by American financial officials.
The cases stem from allegedly false representations made by the cryptocurrency lender regarding the status of its business by the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC).
Mashinsky and Celsius by the CFTC and SEC. Agreement With FTC
According to the unsealed indictment, Mashinsky, 57, is accused of organizing a plot to defraud consumers of Celsius Network and its connected organizations. Lawsuits have been brought by the SEC, CFTC, and FTC against Mashinsky and the business. Mashinsky was detained early on Thursday, according to Bloomberg.
When the TerraUSD stablecoin failed and the cryptocurrency market crashed in May 2022, Celsius, a cryptocurrency lender known for paying high interest rates on digital asset deposits, found itself in financial trouble and had to declare for bankruptcy since it was unable to process customer withdrawals.
According to the SEC court filing, Celsius had losses of more than $800 million in 2021 and around $165 million in the first quarter of 2022. In internal conversations in May 2022, one employee described Celsius as a "sinking ship" while an unnamed executive frankly acknowledged, "We have no profitable services."
The FTC lawsuit asserts that despite Celsius's problematic financial state, Mashinsky and others continued to approach potential clients based on false representations of Celsius's financial stability, including a $750 million insurance policy for deposits. In the CFTC's lawsuit against Mashinsky and Celsius, similar charges are leveled.
In a settlement with Celsius, the FTC permanently barred it from dealing with consumer assets. In order to recover consumer assets, a $4.7 billion judgment payment was deferred.
The SEC also claimed that Mashinsky and Celsius misled investors into purchasing their proprietary CEL coin and signing up for the Earn Interest Program, which offered substantial returns on cryptocurrency deposits. Customers that deposited cryptocurrency using the CEL token had access to higher rates of return.
Mashinsky is also charged with fabricating information about Celsius's financial performance, including claims that the business raised $50 million through an ICO. These accusations follow Letitia James, the attorney general of New York, who filed a lawsuit against Mashinsky in January, accusing him of misleading New York investors about the lender's security and defrauding them. New York State Attorney General, "Attorney General James Sues Former CEO of Celsius Cryptocurrency Platform for Defrauding Investors."
This week's actions against Celsius and Mashinsky are a part of a larger pattern of civil and criminal investigations that target the cryptocurrency business, in which a number of industry participants are being investigated for alleged wrongdoing. This includes Sam Bankman-Fried, a co-founder of FTX, who has been charged with misusing investment cash and handling client funds improperly.
Additionally, the SEC has filed lawsuits against Binance, Coinbase, and Kraken this year. A group of investors bought some of Celsius's assets at auction in May as part of the bankruptcy process.