US authorities arrest, indict Israeli-American ex-CEO of major crypto firm Celsius

Alex Mashinsky accused by Justice Department of operating ‘a years long scheme to mislead customers,’ faces slew of other lawsuits a year after company filed for bankruptcy

Celsius CEO Alex Mashinsky in an image from the company's website. (Screenshot)
Celsius CEO Alex Mashinsky in an image from the company's website. (Screenshot)

Alex Mashinsky, the co-founder and former CEO of Celsius Network, a now-bankrupt cryptocurrency lending platform that had millions of users as well as offices in Israel, was arrested Thursday and indicted as part of a US Justice Department investigation into the firm’s downfall.

Mashinsky and the firm’s chief revenue officer, Roni Cohen-Pavon, who was also arrested Thursday, are accused by federal authorities of securities fraud, commodities fraud, wire fraud and conspiracy to manipulate the price of the company’s token, CEL, the Justice Department said.

In June 2022, Celsius Network suspended all withdrawals and transfers between accounts in a move that sent a chill across the digital currency industry. A month later, the company filed for bankruptcy, saying it was seeking to restructure in a way that would maximize value for all stakeholders, and that it had $167 million of cash available to meet urgent needs in the meantime.

In the United States, Chapter 11 allows a company that is unable to pay its debts to restructure away from its creditors, while continuing its operations.

In May, cryptocurrency consortium Fahrenheit acquired all of Celsius’s assets.

The Justice Department is accusing Mashinsky of leading “a years-long scheme to mislead customers” and of making false statements about his CEL sales.

According to the indictment, “Mashinsky portrayed Celsius as a modern-day bank, where customers could safely deposit crypto assets and earn interest. In truth, however, Mashinsky operated Celsius as a risky investment fund, taking in customer money under false and misleading pretenses.”

The indictment was accompanied by separate lawsuits by the US Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission.

Mashinsky, whose Jewish family emigrated from Ukraine to Israel when he was a child and who moved to the US after his IDF military service, has dismissed as “baseless” a previous lawsuit filed against him by New York Attorney General Letitia James.

New York Attorney General Letitia James announces that she is suing Alex Mashinsky, the former CEO of the failed cryptocurrency lending platform Celsius Network, during a news conference on September 21, 2022, in New York. (AP Photo/Brittainy Newman, File)

There was no immediate comment by Mashinsky or Celsius on Thursday’s arrests and lawsuits.

Before suspending withdrawals, Celsius Network had offered interest rates of over 18 percent for savers, but 0.1% for borrowers. It previously reported $10 billion in assets.

The company was one of the largest players in the sector. It reported having 1.7 million customers in June.

Celsius, founded in 2017, employed over 100 people in Israel. It operated as a kind of crypto bank that allowed clients to deposit cryptocurrency and borrow either cryptocurrency or US dollars. In exchange for customers’ deposits, the company paid out extremely generous yields, upwards of 19% on some accounts. Celsius took those deposits and loaned them out to generate a return.

Celsius’s investors included Quebec’s pension fund and the prominent venture capital fund WestCap.

Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support, and critics have called them effectively Ponzi schemes.

A view of the Celsius Network homepage. (Screenshot)

In November 2021, the former CFO of Celsius Network, Yaron Shalem, was arrested along with nine others involved in the crypto business on suspicion of involvement in an alleged scam that defrauded victims worldwide of huge sums of money.

Celsius had said following Shalem’s arrest that his alleged actions were unrelated to his period with the firm, adding that he was suspended when Celsius learned that he was being investigated.

Celsius’s crisis continued a trend of high-profile collapses of pillars of the cryptocurrency industry. Such companies were attempting to muscle in on banks by lending money and earning interest on deposits, but they are suffering from the sharp decline in cryptocurrencies in a market that is not keen on risky bets.

These meltdowns have erased tens of billions of dollars of investors’ assets and spurred urgent calls for reforming the freewheeling industry and US Congressional regulation.

Agencies contributed to this report.

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