Celsius suspends official under probe; 2nd staffer founded firm with money launderer

Celsius Network, a leading US-based cryptocurrency lending platform with a $3 billion valuation, announced last month that one of its senior employees was the focus of an Israeli police probe. The probe is subject to a gag order imposed by an Israeli judge and The Times of Israel is not permitted to reveal the name or identifying details of, or allegations against, the employee. The company announced on November 26 that it had suspended the employee.

The Times of Israel can reveal that a second senior Celsius Network employee, its chief revenue officer Roni Cohen-Pavon, in May established a side business with a convicted money launderer.

Celsius Network, founded in 2017, employs over 100 people in Israel. It operates as a kind of crypto bank that allows clients to deposit cryptocurrency and borrow either cryptocurrency or US dollars. The company recently attracted $750 million in funding from prominent investors, including a Canadian pension fund, and says it manages $26 billion in deposits — compared to $1 billion a year ago. It claims not merely to be benefiting consumers but to be “ushering in a new economy” in which traditional banks will be rendered obsolete by cryptocurrency platforms.

In May, Cohen-Pavon, the Celsius Network’s CRO, registered a new company in Israel with two partners, one of whom is Eliran Oved, a convicted money launderer who went on to run a binary options website.

Eliran Oved spent a year in Israeli prison for running an illegal gambling website, Play2bet.com, in 2004-2008. The site had a turnover of hundreds of millions of dollars, and police said during their investigation that they suspected ”organized crime gangs and other top criminals were involved with the website, and that they used it to launder money from other operations as well.”

Celsius told The Times of Israel that it takes regulatory requirements very seriously, has not violated any laws or regulations, and was not required to disclose information about Cohen-Pavon’s side businesses to US regulators. Cohen-Pavon told The Times of Israel that the side companies he established never had any business activity and were not related in any way to his work at Celsius Network.

Cohen-Pavon is a former attorney at leading Israeli law firm Herzog, Fox, Neeman. He left to work for Celsius Network in September 2020. At around that time, he began establishing side businesses. The second of these, NNY Capital Ltd., was set up with Oved on May 5, 2021. On July 1, Oved’s shares were transferred to his wife, Liat Kurtz-Oved. She is the owner of an Israeli call center that ran the binary options website PlusOption.com. The entire binary options industry, which at its height employed thousands of Israelis, was banned by Knesset legislation in 2017 for being widely fraudulent and linked to organized crime.

Celsius Network registered as a Money Service Business in the United States on June 18. This means it is required to carry out rigorous anti-money laundering (AML) checks on all users of its platform. The company proclaims on its website that Celsius takes compliance with anti-money laundering rules “very seriously.”

“We have a robust AML program with a knowledgeable team of veteran AML professionals that are Certified Anti-Money Laundering Specialists (ACAMS),” the company website states.

The Times of Israel contacted several anti-money laundering experts to ask what, if any, background checks a C-level executive of a Money Service Business such as Cohen-Pavon would be required to do on any other business partners he may have outside the Money Service Business that employs him.

Mikhail Reider-Gordon, an anti-money laundering expert with US-based Affiliated Monitors, a financial due diligence company, and a professor at the International Anti-Corruption Academy in Austria, told The Times of Israel that Celsius would have been required to disclose information about its executives’ side businesses to US regulators.

“US law requires executives of financial institutions, including Money Service Businesses (MSBs), to complete biographical and financial disclosure forms that include divulging all other companies with which they are associated.  The disclosure questions are not asked for prurient reasons, but to ensure money launderers and other criminals do not gain access to financial institutions at a controlling level,” Reider-Gordan said.

“Any financial institution executive who knowingly enters into a business relationship with a convicted money launderer would likely raise the eyebrow of a regulatory examiner,” she added.

Celsius Network told The Times of Israel that “regulation is vital to Celsius’ continued success and growth, and to the cryptocurrencies space as a whole. We are having a very open and productive dialogue with regulators around the world.”

Oved’s name appears in multiple databases used by financial institutions to check individuals for money-laundering risk. Had Cohen-Pavon done a Google search or search of one of these databases, he would have learned of his partner’s background.

Representatives of Cohen-Pavon said that his businesses were side ventures that never had any activity and were wholly unrelated to his work at Celsius.

“Roni Cohen-Pavon has been active in the high-tech industry and has upon occasion encountered various startups. None of the companies in this article, nor any other company related to him, have had any business activity and they are unrelated to Celsius not its activities in any way. Roni Cohen-Pavon spends his entire time and effort in Celsius and its continued growth,” they stated.

Reider-Gordon, the anti-money laundering expert, told The Times of Israel that Celsius Network would still have been required to report Pavon-Cohen’s side ventures even if the companies were not active.

“One of the things the [regulators’] questionnaire is seeking to identify are any business partners or joint ventures that may be those seeking to evade sanctions, are on block lists, or otherwise ineligible due to a criminal record for fraud,  money laundering, etc.”

‘Unbank yourself’

Celsius Network was founded in 2017 by a Ukrainian-Israeli-American living in the United States named Alex Mashinsky and his Israeli-American partner Shlomi Daniel Leon. The company’s tagline is “Unbank yourself,” and from the beginning, Mashinsky has proclaimed that Celsius Network is part of a history-changing movement to replace the traditional financial system.

“Blockchain-based, decentralized currency is poised to tear down the monolithic foundations of global finance that have existed for centuries, fundamentally reconfigure the methods by which currency is created and distributed, and create a more equitable monetary system than the current fiat model. The ramifications of this are hard to understate: we are talking about a complete restructuring of all the money in the world,” Mashinsky wrote in one of many blog posts on the subject.

One of Celsius Network’s early advisers was Moshe Hogeg, who was arrested in Israel last month on suspicions of money laundering and defrauding investors to the tune of hundreds of millions of dollars in connection with several cryptocurrency ventures Hogeg led from 2017 onwards. Hogeg, who was released to house arrest on $22 million bail on Tuesday, has also been accused of sex trafficking and statutory rape.

Mashinsky, in turn, was an adviser to one of Hogeg’s cryptocurrency ventures, Sirin Labs, as recently as 2019. He was also a frequent guest on Hogeg’s now-defunct BlockTV cryptocurrency-themed television station.

Cohen-Pavon, before leaving his law firm to become Celsius Network’s CRO, represented [Hebrew link] Hogeg in negotiations for his 2018 purchase of the Beitar Jerusalem soccer team.

In the past year, Celsius Network has seen runaway growth. It claims to now manage $26 billion in deposits, up from $1 billion a year ago, and also claims to have over one million users. The Wall Street Journal recently mentioned Celsius Network as one of the leading companies in a hot new craze known as DeFi, or decentralized finance. Celsius offers interest rates on crypto deposits of up to 17 percent, a rate that depositors with traditional banks can only dream of.

In October, Celsius Network announced it had received a $400 million investment led by a major equity fund and a Canadian pension fund.

“It’s not the $400 million. It’s the credibility that comes with the people who wrote those checks,” the company’s CEO Mashinsky told The Financial Times.

On November 24, Celsius Network announced that it had increased its latest funding round from $400 million to $750 million, due to popular demand to invest in the wildly successful startup.

Regulatory troubles

Celsius Network announced in late June that it was relocating from the UK to the United States, due in part, it said, “to the increased regulatory uncertainty happening in the UK today.” On June 18, it registered as a Money Service Business with the US Treasury’s Financial Crimes Enforcement Network.

But in September, state regulators in Alabama, Kentucky, New Jersey, and Texas sent cease-and-desist or “show cause” orders to prevent the company from offering interest-yielding accounts in their states. Regulators alleged that Celsius is offering unregistered securities as well as failing to provide investor protections and depositors insurance as required by law.

In an October 19 blog post, Celsius Network responded to the allegations by saying that it was engaging in “dialogue” with regulators.

“Celsius has received several inquiries from regulators that would like to better understand what we do, how we do that and how we comply with regulatory requirements. We are having a very open and productive dialogue with regulators around the world.”

In the same post, Celsius compared its regulatory challenges to those encountered by the world’s biggest tech juggernauts on their way to the top.

“We’re now operating at the level of major corporations like Uber, Google, and Facebook — all of whom are no strangers to regulatory requirements and procedures. We believe that regulators will eventually come to terms with this new and dynamic crypto world, but we know one thing is certain: Celsius is here to stay.”

Three side businesses

Roni Cohen-Pavon, Celsius Network’s CRO, owns three companies in Israel, all of which were established around the time he began working at Celsius Network.

The first company, established in mid-August 2020, is called Uncharted Partners Ltd., and is co-owned by Cohen-Pavon and Celsius COO Shlomi Daniel Leon.

Cohen-Pavon did not specify the purpose of this company.

The second company, NNY Capital Ltd., was set up in May and was initially owned in equal parts by Cohen-Pavon, Eliran Oved, and a biomed venture capitalist named Ran Nussbaum. In July, Oved transferred his shares to his wife, Liat Kurtz-Oved.

Nussbaum too was involved in the binary options industry. Documents seen by The Times of Israel reveal that in April 2014, three years before the Knesset outlawed binary options, he and several other investors set up a company in the Seychelles known as TRDX Services Limited, which operated the binary options website Tradorax.com.

In an email to The Times of Israel, Nussbaum wrote, “I explored an option to invest in NNY but never had the chance to DD [due diligence] the company.” He said that as far as he knows, the company was never active.

Regarding Celsius Network and Tradorax, Nussbaum said, “I have no business with them.”

Cohen-Pavon’s third side company, Klip Technologies, was established in July 2021 and is a payments company fully owned by Cohen-Pavon. Cohen-Pavon told The Times of Israel that this payments company, like NNY Capital Ltd., is a side venture that has nothing to do with his role at Celsius Network.

Binary options in Israel

Since about 2005, Israel has been a major hub of fraud involving fake online trading or investments. Israeli authorities largely ignored the criminal activity, allowing it to blossom into a full-fledged industry employing thousands of people and allegedly stealing billions of dollars from people worldwide. One prominent scam, known as binary options, involved luring investors to trade on slick websites, promising them high returns but ultimately disappearing with their money.

While the financial instrument known as binary options specifically has been outlawed by Knesset legislation, largely as a result of Times of Israel reporting, Israel still has a large cohort of well-trained professionals with expertise in fraudulent online marketing and money laundering. Some have allegedly continued to defraud investors using other financial instruments like forex, CFDs or cryptocurrencies. Others have found employment in Israel’s booming fintech sector, which is producing a large number of “unicorns” — companies valued at over a billion dollars.

Shortly after The Times of Israel sent Eliran Oved an email inquiring about his business relationship with Cohen-Pavon, as well as his and his wife’s involvement in the binary options and forex business, a Times of Israel reporter received an unsolicited text message from a third party warning The Times of Israel not to write about one of several companies linked to Oved’s wife. The third party claimed that the people associated with this company are violent individuals “who will go to any length to prevent information about them appearing in the media.”

Later that day, The Times of Israel received a letter from Oved’s lawyer at the Herzog, Fox, Neeman law firm denying that Eliran Oved or Liat Kurtz Oved are in any way connected to Celsius Network.

“NNY Capital never had any activity and is not an active company,” the attorney, Isaac Shragay, wrote. “There is nothing about this company that links my client to Celsius and no such connection exists,” he wrote.

Oved and his wife are named in a lawsuit in Israel by dozens of investors who say they were defrauded into investing in alleged scam financial instruments — binary options, forex, and CFDs — through a number of websites operated from a call center run by Oved and his wife.

In a court filing in their defense, Oved and Kurtz-Oved acknowledged a connection to PlusOption and Greenfields Capital, but not to other websites.

The defendants argued that they have not broken any laws because they stopped selling binary options before January 2018, when it was outlawed.

In response to a request for comment from The Times of Israel, Isaac Shragay, the Oveds’ attorney, refused to address the claims in the fraud lawsuit, saying that his clients intend to argue their case in court and not in the media, and that they are confident the judge will ultimately reject the plaintiffs’ allegations.

The Oveds also run a company that uses the website Finovation.com, which says that it helps people who would like to start a forex website with everything they need to set it up, from trading software to payment processing services and even guidance in hiring employees and setting up a call center.

Ken Gamble, the chairman of IFW Global, an international investigation and intelligence firm based in Australia, told The Times of Israel that his company has been investigating websites related to Finovation for the last year on behalf of clients who allege they have been defrauded.

“This has had a devastating effect on them and their families; some have even been too ashamed to tell their relatives. There are thousands of victims in Australia and around the world. It’s just a river of money,” he said.

Battling ‘bad-faith’ actors

Celsius’ CEO, Alex Mashinsky, has on several occasions weighed in on the problem of criminals and bad actors harming the reputation of the cryptocurrency industry.

In a January blog post entitled “Crypto You Can Believe In,” he described how Celsius is on a mission to educate the public about the benefits of cryptocurrency versus big banks and Wall Street.

“But we also face a battle within the crypto industry that we cannot ignore: The bad-faith actors who take advantage of the technical glitches and the lack of savvy of new users to scam people out of financial freedom and harm the reputation of the entire nascent industry.”

“Trust is our number one priority,” he declared.