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Alex Mashinsky, the founder of bankrupt cryptocurrency lender Celsius Network, has been arrested by US authorities and charged with fraud and market manipulation.
Prosecutors allege that Mashinsky misled investors into ploughing billions of dollars into Celsius, portraying it “as a modern day bank, where customers could safely deposit crypto assets and earn interest”.
An indictment unsealed shortly after Mashinsky’s arrest on Thursday said that by contrast the cryptocurrency platform had operated “as a risky investment fund” that was far less profitable than Celsius had led investors to believe.
The criminal case, brought by federal prosecutors in Manhattan, added that Celsius also used some customers’ money to manipulate the market for a cryptocurrency token called CEL. This, they said, allowed Celsius to sell its own holdings of the token at prices that exceeded its market value.
Celsius, which is now being run by a team of restructuring professionals led by former JPMorgan Chase banker Chris Ferraro, has accepted responsibility for its part in the alleged scheme, according to a non-prosecution agreement with the Department of Justice also unveiled on Thursday.
Mashinsky was due to appear in court in New York on Thursday afternoon. Roni Cohen-Pavon, Celsius’s former chief revenue officer who was also charged in the case, lives in Israel and prosecutors said they believed he was abroad.
Three US regulators issued parallel civil lawsuits on Thursday.
The Securities and Exchange Commission is seeking to fine Mashinsky and ban him from the cryptocurrency industry, while the Commodity Futures Trading Commission and the Federal Trade Commission are seeking monetary penalties.
SEC enforcement director Gurbir Grewal said his agency was acting to protect investors who lost out. “Ultimately, the defendants’ elaborate crypto fraud collapsed of its own weight,” he said, “when their lies . . . could no longer prop up the Celsius platform.”
Neither Celsius nor a lawyer for Mashinsky immediately responded to requests for comment.
Celsius filed for bankruptcy last July after the 2022 rout in crypto markets, when popular tokens such as bitcoin and ether lost more than half their value.
The previous month, it had locked out hundreds of thousands of investors from their funds in response to steadily increasing withdrawal requests.
Mashinsky was sued by New York attorney-general Letitia James in January for allegedly “defrauding hundreds of thousands of investors . . . out of billions of dollars worth of cryptocurrency”. He has denied wrongdoing.
His lawyers said in May that James’s claim was founded on “baseless conclusions” and that Celsius’s “eventual downfall was caused by a series of calamitous, external events”.
However, in the suit it filed on Thursday, the SEC accused Celsius of engaging in “risky trading practices” and making uncollateralised loans to generate revenue, “putting the entire Celsius enterprise at grave risk”. It added that Celsius “frequently paid much more than 80 per cent of its revenue to satisfy the company’s interest payment obligations — a business practice that was hidden from investors”.
The SEC added that Celsius and Mashinsky had falsely claimed the platform had 1mn active users, claiming that, by contrast, the company’s own internal data showed roughly 500,000 users had deposited crypto assets with it.