Unpacking the Federal Lawsuits Against Celsius Network and Its Ex-CEO

In 2021, when the crypto market was booming, lender Celsius Network was one of the biggest digital asset brands in the world—claiming to manage over $25 billion in assets.

But fast forward to today, and the company’s bankrupt and ex-CEO Alex Mashinsky has been arrested. He’s facing a number of serious criminal—and civil—charges.

Exactly one year after the company went bust, the feds on Thursday arrested Mashinsky and hit him with seven criminal charges, alleging he pocketed $42 million by defrauding customers. He later on Thursday pleaded not guilty and is due to be released on bail after agreeing to a $40 million personal recognizance bond.

They also charged his colleague, ex-chief revenue officer, Roni Cohen-Pavon, with four criminal counts. Israeli Cohen-Pavon is currently abroad, according to the DOJ.

Celsius was also hit with three other lawsuits by the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission.

Authorities allege that Celsius promised to be a “modern day bank” and the “safest place” for customers’ crypto but was instead a company in a “dire financial situation.”

Here is a breakdown of all the lawsuits.

U.S. Department of Justice

The most serious allegations are the criminal ones.

According to the U.S. Attorney’s Office for the Southern District of New York indictment unsealed Thursday, prosecutors allege that Mashinsky, Cohen-Pavon, and others at Celsius, “orchestrated a yearslong scheme” to make it seem that Celsius’ assets were more valuable than they were.

U.S. Attorney Damian Williams on today’s indictment against Alexander Mashinsky and Roni Cohen-Pavon: “Exactly one year ago today, Celsius Network, a crypto platform that, at its height, managed approximately $25 billion in customer assets, filed for bankruptcy protection 1/6

— US Attorney SDNY (@SDNYnews) July 13, 2023

This pumped the price of the company’s native token CEL so they could allegedly cash it out at inflated prices.

“Mashinsky personally reaped approximately $42 million in proceeds from his sales of CEL, and Cohen-Pavon personally reaped at least $3.6 million in proceeds from his sales of CEL,” the indictment reads.

When 2022 came around and the value of the digital asset market was slumping, Celsius “could not withstand the drop in crypto asset prices.” But Mashinsky continued to claim that the platform was safe and customers should deposit their crypto there, prosecutors allege, even as Mashinsky himself had cashed out.

And it had been a long time coming. “The efforts of Alexander Mashinsky, the defendant, to deceive the public about the reliability and profitability of Celsius’ model began near its inception,” Thursday’s indictment said.

Securities and Exchange Commission

Wall Street’s biggest regulator also sued Celsius and Mashinsky on Thursday.

The SEC said that the collapsed crypto lender repeatedly lied to customers about how safe the platform was, claiming that it had received approval from state and federal regulators when this wasn’t the case. It also allegedly flogged unregistered securities.

The regulator also alleged that Celsius didn’t have one million users—as the company said back in 2021—but rather 500,000.

And despite the fact that Celsius started to collapse in 2022, and a report circulated in the company acknowledged this, the lender “told the investing public a very different story,” according to the SEC complaint.

Mashinsky even allegedly said that Celsius had not “experienced any significant losses” even though the platform “incurred losses of more than $800 million in 2021 and additional $165 million during the first quarter of 2022,” the SEC wrote.

The SEC charges include the unregistered offer and sale of crypto asset securities through Celsius’s lending program, making false and misleading statements, and engaging in market manipulation. The regulator also asked a court to bar him from serving as an officer or director of a public company in the future.

Federal Trade Commission

The FTC alleged Thursday that Celsius “duped consumers” who didn’t know much about crypto to deposit their assets and then “squandered” their investments.

Like the DOJ and SEC complaints, the FTC alleged that Celsius Network and Mashinsky lied and repeatedly misled investors. The lawsuit also included co-founders Shlomi Daniel Leon and Hanoch “Nuke” Goldstein.

FTC reaches settlement with crypto platform Celsius Network; Charges former executives with duping consumers into transferring cryptocurrency into their platform and then squandering billions in user deposits: https://t.co/zkigpfHneU

— FTC (@FTC) July 13, 2023

“They failed to maintain enough liquid cryptocurrency to allow all customers to

withdraw their crypto on demand,” the complaint said. “Defendants concealed these facts from the public and falsely touted Celsius as a safe alternative to banking—even though it was anything but.”

Later on Thursday, the FTC announced a settlement with Celsius, including a $4.7 billion fine—and banning Celsius and its affiliates from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets.

Commodity Futures Trading Commission

The CFTC also on Thursday charged Mashinsky and Celsius with fraud and material misrepresentations in connection with the operation of its digital asset-based finance platform.

In short, Celsius lied to its customers, the CFTC alleged. Mashinsky was even told not to keep telling customers lies, according to the Thursday complaint.

“Mashinsky had been told by Celsius senior management that his statements about Celsius’s leverage were false and that Mashinsky should cease from making these misrepresentations to the public,” it read.

Despite this, Mashinsky continued to allegedly mislead the public. In one example, he claimed he was holding CEL because its value was going up. In reality, his “trading was never disclosed to the public” and he was “selling more CEL than he was buying,” the CFTC alleged—claiming he sold $2 million in the cryptocurrency in May 2022 despite saying, “I’m holding, I didn’t sell,” earlier that month.

The CFTC is seeking restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.