Founder of cryptocurrency lending platform Celsius Network, Alexander Mashinsky, was arrested on July 13 on federal charges related to alleged fraudulent practices. Mashinsky, who established Celsius in 2018, presented the platform as a secure alternative to traditional financial institutions, promising investors financial freedom and opportunities by holding crypto assets.
However, federal prosecutors claim that Mashinsky misrepresented the financial health of Celsius, leading to its eventual collapse and bankruptcy a year ago. The Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) filed companion lawsuits on July 13, asserting that Mashinsky and Celsius made false promises of a safe investment with high returns. They allegedly misled investors about the success of Celsius' business and manipulated the price of Celsius' own crypto asset security through fraudulent means.
The SEC lawsuit highlighted that Celsius falsely claimed to have 1mn active users on its platform when the actual number was approximately 500,000, based on internal data. Many of these users were no longer active participants. The regulatory bodies contend that Celsius intentionally misled investors about its operations.
Mashinsky's defense attorneys vehemently denied the allegations and expressed their client's intention to vigorously defend himself in court. Following his plea of not guilty, Mashinsky was released on July 13 after posting a $40mn bond.
The alleged scheme began to unravel in June 2022 when investors were unable to withdraw billions of dollars in crypto assets from Celsius' online platform. The company subsequently filed for bankruptcy a month later.
As per the SEC lawsuit, internal communication within Celsius indicated that the business was unsustainable and on the verge of failure. Employees referred to Celsius as a "sinking ship" and expressed doubts about the company's future, with one employee stating, "there is no hope ... there is no plan." The lawsuit also revealed that Celsius acknowledged internally on May 21, 2022, that it lacked profitable services.
"From its inception Celsius was taking far greater risks with customers’ money than Mashinsky advertised. A platform that advertised as 'the safest place for your crypto' left investors holding billions in losses," U.S. Attorney Damian Williams stated.
The Director of Enforcement at the SEC, Gubir Grewal, remarked that the elaborate crypto fraud orchestrated by the defendants eventually crumbled due to its inherent flaws. Regrettably, this collapse resulted in thousands of investors finding themselves in dire straits, seeking recourse in the bankruptcy court.
As the legal proceedings unfold, affected investors await justice and hope for the recovery of their losses.
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