Founder of crypto lender Celsius Network arrested and charged with fraud

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July 13 (Reuters) – Alex Mashinsky, founder and former CEO of bankrupt cryptocurrency lender Celsius Network, has been arrested and charged with fraud, a U.S. prosecutor in New York said on Thursday, while three federal regulatory agencies l continued, he and his company.

Mashinsky, 57, was charged with seven counts – including securities fraud, commodity fraud and wire fraud – while former Celsius chief revenue officer Roni Cohen-Pavon was charged with four counts, according to the indictment, which was unsealed on Thursday.

Lawyers for Mashinsky and Celsius did not immediately respond to requests for comment, and Cohen-Pavon’s lawyer could not immediately be reached.

Mashinsky is one of several crypto moguls to be indicted in another blow to the industry, which has suffered a toll after a crash in crypto prices led to several companies collapsing, including the exchange giant FTX. Its founder, Sam Bankman-Fried, was charged with fraud last year and pleaded not guilty.

The US Attorney’s Office in Manhattan announced that it would hold a press conference to provide details of the charges against Mashinsky and Cohen-Pavon.

“PROFITS IN YOUR POCKET”

Celsius filed for Chapter 11 bankruptcy in July last year after customers rushed to withdraw their deposits as crypto prices plummeted. Many have been unable to access their funds for over a year.

According to the indictment.

Prosecutors alleged that Mashinsky also personally reaped approximately $42 million in proceeds from the sale of his Cel token holdings.

In a related development, the U.S. Securities and Exchange Commission (SEC) sued Mashinsky and Celsius on Thursday, according to a court filing, alleging he and his firm raised billions of dollars through the sale of unregistered crypto securities. and misled investors about the financial situation. of the private company.

The SEC, along with other regulators who also filed lawsuits on Thursday, accused Mashinsky and his company of presenting Celsius as a vault – similar to a traditional bank – even as they increasingly took action. risky to deliver promised high returns on customer deposits.

Celsius used emails containing phrases such as “For yourself a cup of profits” and “Profits in your pocket” to promote its interest generation program, which promised investors returns of up to 17%, the SEC said.

While the company lost millions of dollars as customers rushed to withdraw funds, the then CEO and Celsius continued to claim that the company was financially secure and had enough funds to do so. facing withdrawals, regulators said.

Celsius was among the first in a string of cryptocurrency bankruptcies last year as token prices soared amid rising interest rates and stubbornly high inflation . It filed for bankruptcy shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did the same.

Crypto lenders such as Celsius have grown rapidly as crypto prices surged during the COVID-19 pandemic. They promised easy access to loans and high interest rates to depositors, then lent tokens to institutional investors, hoping to profit from the difference.

The SEC said Celsius engaged in “risky business practices” and made unsecured loans, although it told investors that was not the case. The company also falsely claimed to have raised $50 million from its initial token sale and claimed to have 1 million active users when in fact it only ever had about 500,000 depositors, many of them were no longer active, the SEC said.

The U.S. Commodity Futures Trading Commission and the Federal Trade Commission also sued Celsius and Mashinsky. The FTC said it has reached an agreement with Celsius that will permanently ban it from handling customer assets.

The lawsuits from regulators add to a series of challenges for Celsius Network and its founder. In January, the New York State Attorney General sued Mashinsky, alleging he defrauded investors of billions of dollars in digital currency by covering up the failing health of the lending platform.

The crypto industry has been on even more shaky ground since the SEC’s lawsuits against major crypto exchanges Binance and Coinbase Global (COIN.O) last month raised risks of new regulatory challenges for the sector. .

Mashinsky is a serial entrepreneur, having founded eight companies, including telecommunications provider Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi to the New York City subway.

Reporting by Niket Nishant in Bengaluru, Hannah Lang in Washington and Elizabeth Howcroft in London; additional reporting by Chris Prentice in New York; Editing by Shinjini Ganguli, Chizu Nomiyama and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

Niket Nishant reports on breaking news and quarterly results from Wall Street’s biggest banks, card companies, fintech startups and asset managers. It also covers the biggest IPOs on US exchanges and late-stage venture capital funding, as well as news and regulatory developments in the cryptocurrency industry. His handwriting appears…

Hannah Lang covers fintech and cryptocurrency, including the companies driving the industry and the political developments governing the sector. Hannah previously worked at American Banker where she covered banking regulation and the Federal Reserve. She graduated from the University of Maryland, College Park and lives in Washington, DC.

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and money that generates “Web3”.

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