Crypto Company CEO Arrested 

Celsius, the embattled crypto lender, has agreed to pay a $4.7 billion settlement with government regulators for scheming to defraud investors out of billions. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) charged Celsius with manipulating the price of its exchange token, CEL, and misleading investors. The concurrent proceedings are against Alex Mashinsky, the former CEO of Celsius, and the company itself.

Background

Celsius, a crypto exchange, was founded in 2017 by Alex Mashinsky. The exchange’s main selling point was its high-yield accounts, which promised returns of up to 17% on deposits of cryptocurrencies. The company claimed to use algorithms to generate returns on users’ deposited assets by lending them out to borrowers at higher interest rates.

However, earlier this year, New York prosecutors accused Mashinsky of orchestrating a $20 billion fraud against investors. They alleged that he misled investors about Celsius’s profitability, the safety of its yield-generating activities, and the risks associated with depositing crypto assets with Celsius.

Charges Against Celsius and Mashinsky

On Thursday, July 21st, Alex Mashinsky was arrested on federal securities fraud charges. He faces charges of securities, commodities, and wire fraud, as well as various securities manipulation and fraud charges. If convicted, Mashinsky and a co-defendant, Roni Cohen-Pavon, face decades in prison.

“Mashinsky misrepresented, among other things, the safety of Celsius’s yield-generating activities, Celsius’s profitability, the long-term sustainability of Celsius’ high rewards rates, and the risks associated with depositing crypto assets with Celsius,” federal prosecutors said in a charging document.

The settlement, announced by the FTC, will not be paid until the company is able to return what remains of customer assets in bankruptcy proceedings.

The SEC has alleged that Mashinsky and his company “misrepresented” the company’s “central business model and the risks to investors” by allegedly claiming Celsius did not engage in risky trading and paid most, but not all, of the company’s revenue over to investors.

“None of these claims,” the SEC alleged, were true. Celsius had allegedly experienced, for example, “hundreds of millions of dollars” worth of defaults on its institutional loans.

Both the charging documents from New York federal prosecutors and the SEC complaint also describe Celsius’ exchange token as a security. The definition of a security and the SEC’s oversight over crypto markets has been hotly contested by other crypto exchanges in recent months.

Settlement Amount

The $4.7 billion settlement is one of the largest in the FTC’s history, close to the record $5 billion fine levied against Meta in 2019, and highlights what the FTC described as repeated deceptions by Celsius and Mashinsky.

Future of Celsius

Celsius informed state regulators last week that it was filing for bankruptcy imminently. The exchange has been plagued by yearslong issues, as former employees have revealed, and its bankruptcy has not come as a surprise to many in the industry.

The settlement amount, though large, will not be paid until the company is able to return what remains of customer assets in bankruptcy proceedings. It is unclear what the future holds for Celsius and its investors.

Impact on the Crypto Industry

The bitcoin sector has faced fraud and manipulation claims before Celsius and Mashinsky. Global regulators are scrutinizing the industry and calling for more monitoring.

The charges against Celsius and Mashinsky highlight the need for greater transparency and accountability in the crypto industry. Investors must be able to trust in the companies that they invest in, and regulators must be able to hold those companies accountable when they violate the law.

Conclusion

The charges against Celsius and Mashinsky are a stark reminder of the risks that investors face when they invest in the crypto industry. The industry is still largely unregulated, and investors must do their due diligence before investing in any company.

The charges also highlight the need for greater oversight and regulation in the industry. Regulators must work to ensure that companies are transparent, accountable, and follow the law.

 

FAQ

What is Celsius? Celsius is a crypto exchange that promised high-yield accounts to users. The exchange’s algorithms lent users’ assets to borrowers at higher interest rates to create returns.

What are the charges against Celsius and Mashinsky? Celsius and Mashinsky are charged with scheming to defraud investors out of billions and manipulating the price of Celsius’s exchange token, CEL. Mashinsky also faces charges of securities, commodities, and wire fraud, as well as various securities manipulation and fraud charges.

What is the settlement amount? Celsius has agreed to pay a $4.7 billion settlement with government regulators, one of the largest in the FTC’s history.

What is the future of Celsius? Celsius has informed state regulators that it is filing for bankruptcy imminently. It is unclear what the future holds for Celsius and its investors.

What is the impact of the charges on the crypto industry? The charges against Celsius and Mashinsky highlight the need for greater transparency and accountability in the crypto industry. Regulators must work to ensure that companies are transparent, accountable, and follow the law.

 

First Reported on NBC News

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