Alex Mashinsky, a former CEO of Celsius, was detained on Thursday on suspicion of federal securities fraud after claims of misleading investors and manipulating the price of the exchange's token, CEL. Federal regulators and the collapsed cryptocurrency exchange agreed to a record-breaking $4.7 billion settlement.
The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) also charged Celsius with defrauding investors of billions.
The settlement, among the biggest in the Federal Trade Commission's (FTC) history, emphasizes the alleged repeated deceptions Celsius and Mashinsky committed, CNBC reported.
Federal authorities have charged Mashinsky with many offenses, including securities, commodities, wire, and fraud in the securities industry. Mashinsky and co-defendant Celsius chief revenue officer Roni Cohen-Pavon risk receiving lengthy jail terms if found guilty.
Federal authorities said Mashinsky misrepresented the reliability of Celsius's yield-generating operations, the business's financial success, the long-term viability of high reward rates, and the dangers involved in storing crypto assets with Celsius.
Acts of Deception
The FTC announced a $4.7 billion settlement, which will be paid once the corporation completes bankruptcy procedures and returns the last of the customers' assets.
The SEC is also pursuing legal action against Mashinsky and Celsius because Mashinsky deceived investors and deceptively manipulated the price of the exchange token CEL. By falsely claiming that the firm did not participate in hazardous trading and paid the majority, but not all, of its income to investors, the SEC alleges that Celsius misrepresented its core business model and its risks.
The Department of Justice (DOJ) further asserts that Mashinsky and Cohen-Pavon artificially raised the price of CEL so that investors would buy the token, per The Verge. The DOJ contends that Mashinsky and Cohen-Pavon gained $42 million and $3.6 million by selling their tokens, despite Mashinsky promising Celsius consumers that he was not selling his tokens.
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The prosecution points to a WhatsApp exchange from October 2021 in which Cohen-Pavon confessed that individuals were selling CEL rather than purchasing, that the value was fictitious, and that it had been artificially sustained by high expenditure.
Prosecutors further charged Mashinsky and Cohen-Pavon with misrepresenting Celsius as a secure platform for collecting interest while holding it up as a dangerous investment fund that defrauded clients by accepting their money under false pretenses.
Celsius Allegedly Operated as Ponzi Scheme
The SEC, the CFTC, and the FTC have all filed charges against Celsius, accusing the firm and its former executives of fraud, in addition to the arrests of Mashinsky and Cohen-Pavon.
The market instability of last year, which resulted from TerraUSD's demise, destroyed numerous significant cryptocurrency businesses like Celsius Network. The firm declared bankruptcy, causing substantial losses for clients.
An impartial examiner was chosen as part of Celsius' bankruptcy case to look into claims of functioning as a Ponzi scheme and assess the management of cryptocurrency assets, as per a Reuters report.
The founder of Celsius, Alex Mashinsky, was sued earlier this year by the New York Attorney General for allegedly defrauding investors of billions of dollars in digital currency by hiding the lending platform's deteriorating state.
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