July 14, 2023: On Thursday, Former Celsius CEO Alex Mashinsky was captured on federal securities fraud charges, a source stated as the bankrupt crypto exchange agreed to pay a $4.7 billion settlement with government regulators.
The SEC and CFTC fined the exchange for scheming to defraud investors out of billions. The $4.7 billion settlement is one of the largest in the FTC’s history, compared to the $5 billion fine levied against Meta in 2019. It highlights what the FTC described as repeated deceptions by Celsius and Mashinsky.
Federal prosecutors charged Mashinsky with securities, commodities, and wire fraud, as well as various securities manipulation and fraud charges. Mashinsky and a co-defendant, Roni Cohen-Pavon, face decades in prison if convicted.
“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 FTC announced the settlement will be paid once the company can return what remains of customer assets in bankruptcy proceedings.
The concurrent SEC proceedings are against Mashinsky and Celsius, and like the federal charges, allege that Mashinsky misled investors and fraudulently manipulated the price of Celsius’ exchange token, CEL.
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.
The charging documents from New York federal prosecutors and the SEC complaint also describe Celsius’ exchange token as a security. In recent months, other crypto exchanges have hotly contested the definition of security and the SEC’s oversight over crypto markets.
New York prosecutors accused Mashinsky of orchestrating a $20 billion fraud against investors earlier this year. CNBC previously reported on pervasive, yearslong issues that plagued the crypto exchange well before it filed for bankruptcy in 2022.
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