Source: The New York Times

The bankrupt crypto lending company, Celsius, along with its CEO, Alex Mashinsky, and other former employees of the company are facing a series of lawsuits by US financial regulators for fraud allegations.

The CEO was resultantly arrested and brought to court where he was charged with several crimes including wire fraud to which he pleaded not guilty.

Celsius and CEO Face Lawsuits

Before its fall, Celsius was one of the most prominent cryptocurrency companies. The company had gained popularity due to the high-interest rate it offered to customers who deposited digital assets with the company.

Unfortunately, when the TerraUSD stablecoin fell, customers panicked and began making mass withdrawals of their assets from the company. Due to the inability to meet the sudden increase in withdrawals, the company collapsed.

As a result of the company’s sudden fall despite having painted a picture of perfect financial health, Celsius has attracted the attention of US regulators and law enforcers. On Thursday, the Federal Trade Commission (FTC), Commodity Futures Trading Commission (CFTC), and Securities and Exchange Commission (SEC) all simultaneously filed lawsuits against Celsius, Mashinsky, and others.

Additionally, the Department of Justice(DOJ) unsealed a criminal indictment against the former CEO that had been filed earlier in the week. In the 46-page indictment, prosecutors said that Celsius staff members were compelled to retract glowing public claims Mashinsky made about the platform’s financial health because they were “false and misleading.

According to the DOJ, Mashinsky, and Cohen-Pavon also “illicitly manipulated the price of CEL,” leading investors to purchase the token at exorbitant prices. The DOJ asserts that selling their tokens brought in $42 million for Mashinsky and $3.6 million for Cohen-Pavo, despite the fact that Mashinsky promised Celsius customers he wasn’t selling.

The duo was additionally said to have been lying to Celsius customers about the token as well as their activities and the company’s overall health.

Following the arrest, Mashinsky will be granted bail after his wife and another person cosigned on a $40 million personal recognizance bond. Moreover, his travel has been limited to New York because he surrendered his two passports to the authorities.

Regulatory Storm Hits Celsius

Similarly, the SEC charged the company and Mashinsky with obtaining billions of dollars from investors through “unregistered and fraudulent offers and sales of crypto asset securities.” They also “falsely promised investors a safe investment with high returns”. Through its Earn Interest Program, investors were informed they could earn up to 18% in yield yearly.

The SEC also claimed that the company’s CEL token and its former Earn Interest Program are securities. This is consistent with the regulator’s stand concerning other tokens in the Coinbase and Binance lawsuit.

Aside from Mashinsky, the FTC also charged the two other founders of Celsius, CSO Shlomi Daniel Leon, and CTO Hanoch “Nuke” Goldstein, for deceiving people that their deposits would be secure and always available.

Lastly, CFTC charged Mashinsky and Celsius for using misleading representations of high-interest returns and security to trick individuals into giving them their money.

So far, Celsius has signed a non-prosecution agreement with the DOJ and is working on a settlement agreement with the FTC. The settlement, which was proposed by the FTC, permanently bans Celsius and its subsidiaries “from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets.”

Furthermore, the agreement requires that the company pays a $4.7 billion financial penalty, though Celsius won’t have to pay that until all of its customers are made whole.

On the other hand, Mashinsky, Leon, and Goldstein did not agree to the FTC’s settlement terms hence the case against them will proceed in federal court.

The (alleged) sketchy doings of Celsius were first publicized by YouTube scam investigator Coffeezilla, who dove deep into court documents and spoke to former employees. Investigators like him often don’t go as far as directly alleging crimes to avoid defamation lawsuits but in this breakdown he was confident enough to call Celsius a billion dollar fraud.

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