WASHINGTON (dpa-AFX) - Alex Mashinsky, the founder and former CEO of Celsius Network, a bankrupt cryptocurrency lender, was arrested and charged with fraud, according to a U.S. prosecutor in New York.
Alongside Mashinsky, three federal regulatory agencies have also filed lawsuits against him and his company. The charges against Mashinsky include securities fraud, commodities fraud, and wire fraud, as detailed in an unsealed indictment.
Prosecutors and federal regulators allege that Mashinsky misled customers and artificially inflated the value of Celsius Network's proprietary cryptocurrency token. The former chief revenue officer of Celsius, Roni Cohen-Pavon, has also been charged with criminal counts related to the case. Mashinsky and Celsius Network's lawyers have yet to respond to requests for comment, while the attorney for Cohen-Pavon remains unreachable.
Mashinsky's arrest and the lawsuits filed by regulatory agencies deliver a blow to the cryptocurrency industry, which has faced challenges following a downturn in crypto prices resulting in the collapse of several companies, including FTX, whose founder, Sam Bankman-Fried, was charged with fraud last year.
During a press conference detailing the charges, U.S. Attorney Damian Williams emphasized that whether it's traditional fraud or a new-age crypto scheme, it is all considered fraud under the law.
Mashinsky is scheduled to appear before a U.S. magistrate judge in Manhattan later on Thursday, according to the U.S. Attorney's office.
Celsius Network, founded in 2017, filed for Chapter 11 bankruptcy protection in July 2022, after customers rushed to withdraw their deposits amid falling crypto prices. The company promised easy loan access and attractive interest rates to depositors but faced difficulties as token prices declined. Many Celsius customers have been unable to access their funds.
The charges against Mashinsky and Cohen-Pavon include allegations of market manipulation of Celsius Network's crypto token, known as Cel, as well as involvement in a fraudulent scheme to manipulate the token's price. Prosecutors claim that Mashinsky personally earned approximately $42 million by selling his holdings of the Cel token.
The U.S. Securities and Exchange Commission also filed a lawsuit against Mashinsky and Celsius Network, alleging that they raised billions of dollars through the sale of unregistered crypto securities. The SEC accuses them of misleading investors about the financial state of the privately held company. Other regulatory agencies, including the U.S. Commodity Futures Trading Commission and the Federal Trade Commission, have also sued Celsius Network and Mashinsky.
The SEC and other regulators claim that Celsius Network portrayed itself as a safe platform similar to a traditional bank, while engaging in risky trading practices and making uncollateralized loans. They allege that the company falsely represented its financial stability and the number of active users it had.
As part of the legal actions, the FTC announced a settlement with Celsius Network, permanently banning the company from handling customers' assets. The Justice Department has entered into a non-prosecution agreement with Celsius, acknowledging the company's involvement in the alleged schemes and its commitment to cooperating with investigators.
These recent lawsuits add to the challenges faced by Celsius Network and its founder. In January, Mashinsky was sued by New York state's attorney general, also on fraud charges. The crypto industry as a whole has faced increasing regulatory scrutiny, with recent lawsuits against exchanges Binance and Coinbase Global further raising concerns about the sector's regulatory landscape.
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