Investigators from the United States Commodity Futures Trading Commission (CFTC) have determined that Celsius Network, a now-defunct cryptocurrency lender, and its ex-CEO, Alex Mashinsky, broke U.S. regulations prior to the firm’s collapse, according to insiders.
Should a majority of the CFTC’s commissioners agree with these findings, a case could be presented in federal court as early as this month. The confidential sources who revealed this news stated that attorneys from the CFTC’s enforcement unit discovered that Celsius misled its investors and should have registered with the CFTC. It is also alleged that Mashinsky himself violated regulations.
Adding to Celsius’ regulatory pressure, the Securities and Exchange Commission (SEC) and federal prosecutors in Manhattan have also reportedly launched investigations into the company, as revealed by bankruptcy filings.
Celsius Network’s troubles emerged after the firm saw tremendous success during the COVID-19 pandemic. Offering higher interest rates on crypto token deposits than those typically seen in traditional finance, the company grew rapidly. However, the collapse of TerraUSD token and a downturn in the cryptocurrency market led to a domino effect, causing risky bets by the firm to falter and sparking a wave of withdrawals. Celsius froze customer withdrawals in June 2022 and filed for bankruptcy a month later.
Mashinsky, a former telecommunications entrepreneur, co-founded Celsius in 2017. Through an initial coin offering, the company raised funds and developed into a multi-billion-dollar business by paying customers interest for lending out their crypto tokens. Despite its promising beginnings, the company faced serious legal challenges, including allegations from New York Attorney General Letitia James that Mashinsky made false statements about the crypto platform’s safety and misrepresented the declining financial condition of the company.
The fall of Celsius Network and potential legal action against Mashinsky follow a series of lawsuits against other high-profile crypto companies like Binance Holdings Ltd. and Coinbase Global Inc. by U.S. authorities. The rise in these cases underlines the increasing scrutiny faced by crypto companies in the U.S.
Celsius Network’s bankruptcy revealed a shocking deficit of approximately $1.2 billion. Amid these financial challenges, Mashinsky resigned as CEO in September 2022. In the midst of these troubles, Fahrenheit LLC, a group of bidders led by investment firm Arrington Capital, won an auction in May to acquire some of Celsius’s assets.
