FTC Reaches Settlement With Crypto Platform’s Celsius Network; Accuses former executives of tricking consumers into transferring cryptocurrency to their platform and then wasting billions of dollars in user deposits

[ad_1]

The Federal Trade Commission announced a settlement with bankrupt cryptocurrency platform Celsius Network that will permanently ban it from managing consumer assets and accused three former executives of tricking consumers into transferring cryptocurrency on the platform by falsely promising that the deposits would be safe and always available.

Celsius touted a new business model but engaged in an old-fashioned scam, said Samuel Levine, director of the FTC’s Consumer Protection Bureau. Today’s action banning Celsius from handling people’s money and holding its executives accountable should make it clear that emerging technologies are not above the law.

The proposed settlement with Celsius and its affiliates will permanently prohibit the companies from offering, marketing or promoting any product or service that could be used to deposit, trade, invest or withdraw assets. The companies also agreed to a $4.7 billion judgment, which will be stayed to allow Celsius to return its remaining assets to consumers in bankruptcy proceedings. Former CEO and co-founder Alexander Mashinsky and fellow Celsius co-founders Shlomi Daniel Leon and Hanoch Nuke Goldstein have not agreed to a settlement and the FTC’s case against them will continue in court federal.

New Jersey-based Celsius, which filed for bankruptcy in July 2022, marketed a variety of cryptocurrency products and services to consumers, including interest-bearing accounts, personal loans backed by their cryptocurrency deposits and a cryptocurrency exchange. According to a complaint filed by the FTC in federal court, Mashinsky, Leon and Goldstein marketed the platform as a safe place for consumers to deposit their cryptocurrency, claiming in online videos and other forums that his platform was safer than the banks because we have less risk, we have much less risk.

The FTC claims that the company and its executives deceived users by falsely promising them that they could withdraw their deposits at any time, that the company maintained a $750 million insurance policy for deposits, that it had sufficient reserves to meet client obligations and that those in its Earn program could earn rewards on deposits of cryptocurrency assets as high as 18% annual percentage return (APY). They also repeatedly claimed that the company had not made any unsecured loans.

Many consumers have reported that these promises were important factors in their decision to deposit cryptocurrency with Celsius. When opening accounts with Celsius, consumers were required to provide access to sensitive information, including their bank account and other financial information.

Far from securing customers’ cryptocurrency deposits, Celsius took title and misappropriated those deposits totaling more than $4 billion, according to the complaint. The company used consumer deposits to fund its operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments, which even the company admitted it often loses. money.

And contrary to the promises of its executives, Celsius has regularly made unsecured loans, totaling $1.2 billion in April 2022, according to the FTC. At the same time, the complaint accuses Celsius of having only a small reserve of capital that would have allowed a fraction of its customers to withdraw their cryptocurrency within a week. And Celsius did not hold a $750 million insurance policy for the deposits. The company also lacked, until mid-2021, any system to track its assets and liabilities, according to the complaint.

The FTC says Celsius and its top executives also failed to deliver the returns they promised on consumer cryptocurrency. The company provided the highest returns only to those who signed up for its loyalty program and invested in a handful of lesser-known cryptocurrencies, and gave most participants far less than promised.

Even as its fiscal health declined, the company’s top executives hid this information from the public, telling consumers that customer deposits were safe and soliciting new customers just days before freezing customer accounts and depositing the balance sheet, according to the FTC. In May 2022, Mashinsky falsely claimed in an online video that Celsius is stronger than ever, we have billions of dollars in cash. And just days before freezing consumer withdrawals, Celsius falsely promised it had more than enough assets to meet consumer obligations.

While lying to their clients to prevent them from withdrawing their cryptocurrency deposits, Leon, Goldstein and Mashinsky protected themselves by withdrawing large sums of cryptocurrency from Celsius two months before the company filed for bankruptcy. Consumers subsequently lost access to savings, college funds, and money saved for retirement.

In addition to prohibiting Celsius and its affiliates from handling consumer assets, the proposed settlement prohibits the companies from misrepresenting the benefits of any product or service; to make false, fictitious or fraudulent statements to any client of a financial institution in order to obtain or attempt to obtain their financial information; and to disclose non-public personal information about consumers without their express consent.

The Commission voted 3-0 to allow staff to file a lawsuit against Celsius, Leon, Goldstein and Mashinsky and to approve a written order with Celsius and its affiliates. The lawsuit was filed in the U.S. District Court for the Southern District of New York.

NOTE: The Commission allows a complaint to be filed when it has reason to believe that the named respondent is violating or is about to violate the law and it believes that a proceeding is in the public interest. The stipulated orders have the force of law when approved and signed by the judge of the district court.

Lead staff attorneys on this matter are Katherine Aizpuru, Katherine Worthman, and Stephanie Liebner of the FTC’s Consumer Protection Bureau.

[ad_2]