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(CN) — Celsius Network founder Alexander Mashinsky was arrested Thursday on federal charges involving multibillion-dollar fraud and market manipulation schemes.
Founded in 2018, Celsius allowed customers to earn returns on their crypto assets in weekly “rewards” payments and take loans secured by their crypto assets, according to the indictment. The company billed itself as the “safest place for your crypto” and urged potential customers to “unbank” themselves by moving the assets to Celsius.
Through the company’s “Earn Interest Program,” Celsius offered investors to tender their crypto assets to Celsius in exchange for interest payments.
According to the U.S. Securities and Exchange Commission, while the program constituted the offer and sale of securities under federal securities laws, there was no registration filed or in effect and no exemption from registration was available. The program, therefore, lacked the protection that registration would offer.
The SEC claims Celsius and Mashinsky, 57, continually misrepresented core aspects of the program, including making false statements about trading and business strategies, risks, the company’s financial health and the safety of customer assets on Celsius’ platform.
Following his arrest Thursday, Mashinsky left Manhattan Federal Court on a $40 million bond after pleading not guilty. He faces seven counts of securities, commodity and wire fraud that can carry a combined maximum prison sentence of 105 years.
“Celsius lied to investors by presenting itself as a safe investment opportunity and a chance to gain financial freedom, but, behind the scenes, the company operated a failing business model and took significant risks with investors’ crypto assets,” said Gurbir Grewal, director of the SEC’s Enforcement Division, in a statement. “Thousands of retail investors have experienced significant financial hardship as a result of Celsius’s and Mashinsky’s illegal conduct.”
The SEC claims that Celsius and Mashinsky manipulated the market of Celsius’s proprietary crypto token CEL. Starting in at least 2020, it says Celsius and Mashinsky schemed to artificially increase and support the price of CEL through manipulative buybacks of CEL far in excess of its publicly disclosed purchases.
Celsius and Mashinsky, who is the single largest holder of CEL other than Celsius, structured the scheme to have the greatest impact on the market and induce others to buy CEL to the benefit of Celsius and Mashinsky, the SEC says.
According to the indictment, Celsius’s customer base grew exponentially due to Mashinsky’s false statements. By the fall of 2021, Celsius had grown to become one of the largest crypto platforms in the world, purportedly holding approximately $25 billion in assets at its peak.
But the company soon unraveled under the scheme.
On June 12, 2022, Celsius halted all customer withdrawals from its platform. At the time, hundreds of thousands of Celsius customers could not access approximately $4.7 billion worth of crypto assets. On July 13, 2022, Celsius filed for Chapter 11 bankruptcy.
Former chief revenue officer Roni Cohen-Pavon, 36, was also indicted and faces three counts of securities, commodity and wire fraud that can carry a combined maximum prison sentence of 65 years. Cohen-Pavon is an Israeli citizen.
“As alleged in the indictment, Mashinsky and Cohen-Pavon knowingly engaged in complex financial schemes — deliberately misrepresenting the company’s business model and criminally manipulating the value of Celsius’s proprietary crypto token CEL — while serving in leadership roles at Celsius,” said FBI Acting Assistant Director in Charge Christie M. Curtis, in a statement.
Celsius did not immediately respond to an email seeking comment.
Damian Williams, U.S. attorney for the Southern District of New York, also announced today that the U.S. has entered into a non-prosecution agreement with Celsius, in which the company has agreed to accept responsibility for its role in the fraudulent schemes. As part of the agreement, the attorney’s office considered that Celsius is in Chapter 11 bankruptcy proceedings and is attempting to maximize recovery for victims.
“Exactly one year ago today, Celsius Network, a crypto platform that, at its height, managed approximately $25 billion in customer assets, filed for bankruptcy protection in the Southern District of New York,” Williams said in a statement. “Over the course of the past year, we have worked quickly to get to the bottom of what led to Celsius’s collapse and to understand how a platform that advertised itself as the ‘safest place for your crypto’ could have left investors holding billions of dollars in losses. Today we have the answer.”
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