Alex Mashinsky, the founder and former CEO of the bankrupt cryptocurrency firm Celsius Network, was apprehended on Thursday and accused of defrauding customers and misrepresenting the company’s business model. Prosecutors claim that Mashinsky deceived customers into thinking that Celsius was a secure place to invest their money, when in reality it carried significant risks. Additionally, he was sued by multiple regulatory bodies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC).
Mashinsky was arrested at his residence in New York, according to a close source. The charges against him include wire fraud, commodities fraud, and manipulation of securities prices. The company’s chief revenue officer, Roni Cohen-Pavon, also faced charges of price manipulation and wire fraud, among other offenses.
Established in 2018, Celsius gained prominence as a crypto bank offering high interest rates and managing billions of dollars in deposits before collapsing last year. Mashinsky presented Celsius as a safer and more equitable alternative to traditional banks in YouTube videos, serving as the company’s charismatic spokesperson.
Damian Williams, the U.S. attorney for the Southern District of New York, expressed the message being conveyed through the arrest: if you deceive ordinary investors for personal gain, you will be held accountable.
At its peak, Celsius controlled approximately $25 billion in crypto assets. However, the company filed for bankruptcy last summer amidst the broader decline in the crypto markets, leading to significant losses for its 500,000+ users. Mashinsky resigned from his position in September, stating that it had become a growing distraction.
When the bankruptcy was filed, around $4.7 billion in customer assets were frozen on the Celsius platform. In a settlement with the FTC, Celsius agreed to reimburse customers with that amount, though payments will be suspended during the bankruptcy process.
According to charging documents, authorities accused the company and Mashinsky of repeatedly deceiving investors about their interest-generation methods, misleading them about the number of customers, and falsely claiming their deposits were insured.
Celsius customers believed they were investing in groundbreaking assets destined to appreciate in value, similar to customers of other crypto firms like FTX and Binance. Mashinsky and his colleagues used various tactics to convince customers of this, including marketing annual yields as high as 18%, far surpassing traditional banks’ interest rates.
Celsius gained traction during a time when traditional banks offered minimal interest on savings accounts and money market funds, making the firm appealing to investors seeking higher returns.
Nevertheless, Celsius failed to provide detailed explanations of how it achieved such lucrative yields. Mashinsky consistently asserted publicly that the company avoided risky practices, such as extending loans without requiring collateral. In reality, Celsius made substantial uncollateralized loans, according to the SEC.
The SEC’s complaint also revealed that Mashinsky and other company members discussed Celsius’s in-house digital currency, CEL, as if it were publicly traded stock. However, the token was neither registered nor regulated, a common feature in crypto fraud cases.
The downfall of the story Mashinsky depicted to investors began when crypto prices plummeted last year. Emails from Celsius employees demonstrated their awareness that the company was unstable. One employee referred to Celsius as a “sinking ship,” while an unidentified executive admitted, “We don’t have any profitable services.”
Celsius filed for bankruptcy in July, but Mashinsky believed he could embark on a second venture. Prior to his resignation, he attempted to gather support for a rebranded Celsius called Kelvin, named after the temperature unit.
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