According to reports Thursday, the former Chief Executive Officer of the insolvent crypto lending platform, Celsius Network Ltd., Alex Mashinsky, was arrested and charged with fraud in a federal court in New York. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) simultaneously filed lawsuits against Mashinsky and his company.
Mashinsky, once infamous for telling customers “banks are not your friends” is now friend to no one and stands accused of executing a deceptive operation designed to defraud Celsius Network customers, as detailed in the indictment, which spanned from 2018 to June 2022. The indictment alleges Mashinsky exploited his position as CEO to manipulate crypto currencies, a serious offense that carries significant legal repercussions.
Celsius Network, one among the numerous high-profile crypto enterprises to have failed last year, distinguished itself by offering high interest rates on digital asset deposits. Its downfall was precipitated by the collapse of the TerraUSD stablecoin, a core element of its portfolio, and a market downturn that led to a significant shortfall in the company’s balance sheet. As a result, the company could not meet the surge in customer withdrawals.
As the lawsuit was filed against Mashinsky and Celsius Network, the price of the company’s CEL token dipped by around 6%, settling at approximately 15 cents, as per CoinMarketCap data. The token had traded at a high of $8 in June 2021, emphasizing the severe impact of the recent charges but also highlighting the risk of trading tokens without any real utility.
Mashinsky’s legal representation did not immediately respond to a request for comment. He stands as the latest executive in the crypto industry to be hit with charges, as a market downturn exposes a slew of fraudulent operations and unethical practices within the sector.
The embattled former CEO, who was instrumental in Celsius’s establishment in 2017, has been the subject of intense scrutiny by multiple governmental agencies ever since his firm filed for bankruptcy and disclosed a $1.19 billion deficit last year. Despite the tumultuous circumstances, Mashinsky repeatedly assured investors of the company’s bank-like safety.
Earlier this year, New York Attorney General Letitia James took legal action against Mashinsky, alleging fraudulent practices. James claimed Mashinsky had tricked New York investors out of billions of dollars in crypto assets by making false and misleading statements about the lender’s safety.
The lawsuit against Celsius Network is part of a broader surge in civil and criminal crypto cases being pursued by U.S. authorities this year. The Southern District of New York (SDNY) has charged multiple industry players for alleged misconduct, with Sam Bankman-Fried, co-founder of FTX, a notable example, being accused of misleading investors and mishandling billions of dollars of customer funds. The increasing regulatory scrutiny underscores the risks and challenges facing the rapidly evolving, yet often opaque, crypto industry.
