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Alex Mashinsky, the founder of Celsius Network, a cryptocurrency lender that filed for bankruptcy, has been arrested on charges of fraud and market manipulation.
Prosecutors allege that Mashinsky deceived investors by presenting Celsius as a safe platform where they could deposit and earn interest on their crypto assets, while in reality, it operated as a risky investment fund with significantly lower profits than claimed.
The indictment revealed after Mashinsky’s arrest further stated that Celsius used customers’ funds to manipulate the market for its own cryptocurrency token, CEL. This allowed the company to sell its holdings at prices higher than the token’s actual market value.
Celsius, now under new management, has accepted responsibility for its involvement in the alleged scheme, as per a non-prosecution agreement with the Department of Justice.
Mashinsky appeared in court in New York, while another individual charged in the case, Roni Cohen-Pavon, is believed to be abroad.
In addition to the criminal case, three US regulators have filed civil lawsuits. The Securities and Exchange Commission seeks to fine Mashinsky and ban him from the cryptocurrency industry, while the Commodity Futures Trading Commission and the Federal Trade Commission aim to impose monetary penalties.
Gurbir Grewal, the SEC enforcement director, emphasized that their actions aim to protect investors who suffered losses due to the “elaborate crypto fraud” orchestrated by the defendants.
Mashinsky’s lawyer denied the charges and affirmed his client’s intention to vigorously defend himself in court.
Celsius expressed commitment to cooperating with regulators and optimizing value for stakeholders.
Celsius filed for bankruptcy in July following a significant decline in crypto markets. It had previously restricted investor access to funds due to a surge in withdrawal requests.
In January, New York Attorney General Letitia James sued Mashinsky, accusing him of defrauding investors of billions of dollars’ worth of cryptocurrency. Mashinsky has consistently denied any wrongdoing.
Mashinsky’s lawyers previously dismissed James’s claims as baseless and attributed Celsius’s downfall to external events rather than fraudulent activities.
However, the SEC’s lawsuit on Thursday alleges that Celsius engaged in risky trading practices and provided uncollateralized loans to generate revenue, putting the entire company at significant risk. The SEC also claims that Celsius falsely inflated its user numbers, stating it had 1 million active users when its internal data indicated approximately 500,000 users.
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