The US SEC has sued Celsius Network and its former CEO, Alex Mashinsky, for alleged unregistered fundraising and fraud.
The United States Securities and Exchange Commission (SEC) initiated a legal action against Celsius Network and its former CEO, Alex Mashinsky, on July 13. The former cryptocurrency lending firm collapsed last year, sending shockwaves through the industry. The SEC alleges that the company, together with Mashinsky, conducted unregistered and fraudulent fundraising activities, raking in billions of dollars from unwary investors. This development follows the US Commodity Futures Trading Commission’s (CFTC) earlier report that Mashinsky and Celsius violated multiple regulations prior to the company’s downfall in 2022.
Allegations of Market Manipulation
According to the SEC, Mashinsky and Celsius misled investors through the firm’s “Earn Interest Program,” presenting it as a safe investment opportunity. The regulator further alleges that the duo manipulated the price of Celsius’ own digital asset security, the Celsius token, leading to the current lawsuit. It is suggested that the company and Mashinsky misrepresented the firm’s financial state and significant financial events, starting from the Celsius (CEL) initial coin offering in March 2018 until just days before the firm stopped customer withdrawals.
In a further development, Mashinsky faced arrest on July 13. The former CEO’s detention came after an extensive investigation into the company’s downfall and the alleged illicit activities.
Celsius and Mashinsky’s Past Regulatory Troubles
The SEC’s legal move comes on the heels of a separate ruling by the CFTC. The futures regulator concluded that Celsius and Mashinsky breached several regulations before the company’s collapse. Bloomberg reported on July 6 that the CFTC’s enforcement division found that the firm misled investors, failed to register with the regulator, and that Mashinsky himself violated several US rules.
The lawsuit and the arrest coincided with the official announcement from Celsius that the firm has begun voluntary Chapter 11 proceedings. The company stated that it has $167 million in cash reserves, which will facilitate certain operations during the restructuring process. Mashinsky stated that the decision to initiate the bankruptcy proceedings was in the best interest of the company and the community, expressing confidence in the team guiding Celsius through the process.
In January 2023, Mashinsky found himself in hot water when New York Attorney General Letitia James sued him. The legal complaint claimed that Mashinsky, as Celsius’ founder and former CEO, made numerous misleading statements, causing massive financial losses for investors.
The Arrest of Alex Mashinsky, Former Celsius CEO
News about the arrest of Alex Mashinsky emerged on July 13, the same day the SEC filed a lawsuit against Celsius. Authorities detained the former CEO after a comprehensive probe into the company’s collapse. The US Department of Justice indicted Mashinsky on charges of fraud and market manipulation intent.
Celsius Network declared bankruptcy on July 14, 2022. Prior to this, the CFTC investigation found Mashinsky guilty of breaching numerous U.S. regulations. The investigation into Mashinsky’s actions was instigated by the lawsuit from the New York Attorney General in January, alleging investor deception and significant financial losses.
Trouble Brews for Celsius and Mashinsky
Celsius Network faced significant issues starting from June 2022 when it abruptly suspended customer withdrawals. Five U.S. states’ securities regulators launched an investigation into the company on June 16, 2022. Within a month, Celsius had filed for bankruptcy.
The company was not immune to the larger cryptocurrency market turbulence, which saw the implosion of the Terra-Luna ecosystem and the collapse of crypto hedge fund Three Arrow Capital. The CFTC investigation pointed out that Celsius and Mashinsky violated several banking laws and misled customers.
The Rise and Fall of Celsius Network
Celsius Network gained significant popularity during the 2021 bull run, aided by the pandemic. The platform promised attractive interest rates on cryptocurrency deposits, often running into double digits. Mashinsky promoted these products as safer alternatives to traditional banking services. However, the collapse of Terra’s algorithmic stablecoin UST and a downturn in the crypto market proved disastrous for the business.
Mashinsky’s arrest and the SEC lawsuit against Celsius follow the SEC’s lawsuits against crypto exchanges Binance and Coinbase, marking a period of intensified regulatory scrutiny in the digital asset space.