CFTC, FTC sue Celsius as DOJ charges CEO Mashinsky, exec

The CFTC and FTC filed suit against Celsius and former CEO Alex Mashinsky on Thursday, joining a fast-growing wave of federal legal actions taken in succession against the crypto lender.  

Mashinsky on Thursday was also hit with criminal charges by the Department of Justice — the US District Court for the Southern District of New York unsealed an indictment against the Celsius chief executive and his former chief revenue officer on Thursday. 

A grand jury charged seven counts in the case, including wire fraud and token manipulation. 

Each of the civil and criminal actions alleged deep seated fraud at Celsius, as organized by Mashinsky, through purported complex balance sheet maneuvers that left customers vulnerable to withdrawal issues and systemic leverage problems.  

What the DOJ claims 

The DOJ claimed Mashinsky “orchestrated a scheme to defraud customers of Celsius Network” together with the former Chief Revenue Officer Roni Cohen-Pavon. 

From 2018 to 2022, Mashinsky, prosecutors said, misled investors about “core aspects of Celsius’s business.”

The DOJ claims Mashinsky falsely said the bankrupt crypto lender was a modern bank, and also manipulated the price of its token. Celsius did not hold a federal banking charter. The SEC confirmed a number of those claims in its lawsuit against both Mashinsky and Celsius Thursday.

Celsius was in a “dire financial situation” by mid-2022, the DOJ said. 

In fact, by the time that the algorithmic stablecoin TerraUSD depegged and caused the crypto market to drop, Celsius “could not withstand the drop in crypto asset prices.” The customer withdrawals and the price drop in CEL both put steep financial pressure on the company. 

What the FTC claims

Customers were “duped” into depositing crypto on Celsius, the CFTC said. 

Mashinsky and Celsius both assured investors that the lender was “safer’ than a bank or traditional institution” and proceeded to claim deposits were safe.

Celsius did this by claiming that it earned profits at “no risk” to its customers “ by making secured crypto loans to other exchanges,” the FTC claimed.

The FTC’s suit also names Shlomi Daniel Leon, a co-founder of Celsius, said to have worked as the lender’s chief strategy officer.

Like the SEC, the FTC claimed Celsius misrepresented its products and services. 

“Internally, Celsius employees acknowledged that the promises that Celsius made only collateralized loans were false, and that Mr. Mashinsky was a ‘liar’ for claiming that ‘we do not do unsecured lending,’” the FTC claimed. 

What the CFTC claims 

All four suits echo similar claims against the bankrupt lender and its former CEO, saying both defrauded investors and misled the public about its financial position.

Celsius, according to the CFTC’s suit, “acted as an unregistered commodity pool operator of the Celsius Pool by soliciting, accepting, and receiving assets for the purpose of trading commodity interests; and Mashinsky operated as an unregistered associated person of that CPO by soliciting members of the public to contribute to the Celsius Pool.”

The suit also claims Mashinsky and Celsius defrauded investors. 

“In order to meet the returns promised to its customers, Celsius engaged in increasingly risky investment strategies, including the extension of millions of dollars in uncollateralized loans and millions of dollars in unregulated, risky decentralized finance agreements,” the CFTC said.

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