On Thursday, former CEO of Celsius Network Ltd., Alex Mashinsky, was arrested on federal securities fraud charges, coinciding with the bankrupt crypto exchange’s agreement to a $4.7 billion settlement with the Federal Trade Commission (FTC).
The lawsuits filed by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) accuse Celsius and Mashinsky of orchestrating a scheme to defraud investors out of billions. Mashinsky pleaded not guilty to allegations of securities, commodities, and wire fraud in Manhattan federal court. If convicted, he and co-defendant Roni Cohen-Pavon could face lengthy prison sentences.
The settlement reached by Celsius with the FTC is one of the largest in the commission’s history, coming close to the record-breaking $5 billion fine imposed on Meta in 2019. It sheds light on what the FTC describes as ongoing deceit by Celsius and Mashinsky.
However, the settlement will not be paid until the company is able to return the remaining customer assets in bankruptcy proceedings.
The charging document from the U.S. Attorney’s office accuses Mashinsky of misrepresenting Celsius’s yield-generating activities, profitability, the sustainability of high rewards rates, and the risks associated with depositing crypto assets with the company.
In parallel with the SEC’s proceedings, the complaint alleges that Celsius and Mashinsky deceived investors and manipulated the price of Celsius’ exchange token, CEL.
The SEC also claims that Celsius misrepresented its central business model and the risks to investors, falsely stating that the company did not engage in risky trading and distributed most of its revenue to investors.
The SEC contends that these claims were untrue, as Celsius had experienced significant defaults on its institutional loans.
Both the New York federal prosecutors’ charging documents and the SEC complaint classify Celsius’ exchange token as a security. The definition of a security and the SEC’s regulatory authority over crypto markets have been contentious issues in recent months.
Mashinsky’s counsel, Jonathan Ohring, states that Mashinsky vehemently denies the charges and looks forward to vigorously defending himself in court against these baseless allegations.
Prior to this, New York prosecutors accused Mashinsky of orchestrating a $20 billion fraud against investors. CNBC has previously reported on long-standing issues that plagued Celsius long before its 2022 bankruptcy filing.
– CNBC’s Jim Forkin contributed to this report.
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