Alex Mashinsky of bankrupt Celsius arrested on fraud charges

Alex Mashinsky, the founder and former CEO of the now-bankrupt cryptocurrency firm Celsius Network, has been arrested and charged with defrauding customers and deceiving them about the true nature of the company’s business model. This development comes as Celsius faces lawsuits from the Securities and Exchange Commission (SEC) and other regulatory bodies.

According to federal prosecutors, Mashinsky, 57, allegedly misled customers into believing that Celsius was a safe haven for their funds when, in reality, it carried significant risks. The SEC, Commodity Futures Trading Commission, and Federal Trade Commission have all sued Mashinsky and Celsius for various offenses. Mashinsky was apprehended at his residence in New York, and the charges against him include wire fraud, commodities fraud, and manipulation of securities prices. Additionally, charges were filed against Roni Cohen-Pavon, Celsius’s former chief revenue officer, for price manipulation, wire fraud, and other violations.

Promising High Rates

Celsius, founded in 2018, gained prominence as a cryptocurrency bank that promised customers high interest rates and handled billions of dollars in deposits before its collapse last year. Mashinsky, known for his charismatic persona, appeared in YouTube videos touting Celsius as a secure and egalitarian alternative to traditional banks.

Damian Williams, the U.S. attorney for the Southern District of New York, stated, “The message we send today is quite simple: If you rip off ordinary investors to line your own pockets, we will hold you accountable.”

At its peak, Celsius managed around $25 billion in crypto assets. However, the company filed for bankruptcy amid the broader downturn in the crypto market last summer, resulting in significant losses for over 500,000 users. Mashinsky resigned from Celsius in September, citing increasing distractions.

As part of a settlement with the Federal Trade Commission, Celsius agreed to pay restitution of approximately $4.7 billion to customers, although the payments will be suspended during the bankruptcy proceedings.

Alex Mashinsky and Celsius Misled investors

Authorities claim that Mashinsky and Celsius repeatedly misled investors about how the company generated interest for customers, including false claims about customer numbers and deposit insurance. Prosecutors stated that Mashinsky operated Celsius as a risky investment fund, deceiving customers with false and misleading pretenses.

Jonathan Ohring, a lawyer representing Mashinsky, stated that the Celsius founder vehemently denies the allegations. The legal representation for Roni Cohen-Pavon is currently unknown, and he was not arrested as he is abroad.

Mashinsky’s arrest adds him to the growing list of crypto executives facing scrutiny from law enforcement since the market downturn last year. Other notable cases include the arrest of Sam Bankman-Fried, the founder of the failed FTX exchange, and the lawsuit filed against Changpeng Zhao, the CEO of Binance, by the SEC.

Celsius’s rapid growth coincided with the surging value of cryptocurrencies, attracting investors who believed they were investing in assets destined for significant price increases. Mashinsky and his colleagues went to great lengths to convince Celsius customers of the company’s potential, offering extraordinarily high annual yields and positioning Celsius as a modern-day bank. However, authorities allege that Celsius engaged in deceptive practices and unregistered token offerings.

The unraveling of the narrative began when crypto prices plummeted, revealing the true state of affairs at Celsius. Internal emails cited by the SEC showed that employees were aware of the company’s precarious situation, describing it as a “sinking ship” and acknowledging the absence of profitable services.

Celsius filed for bankruptcy in July, but Mashinsky remains determined to launch a new venture. Prior to his resignation, he attempted to rally support for a revamped version of Celsius, which he named Kelvin, after the unit of temperature.