Celsius is caught in a legal vortex with US regulators for manipulating the market and making illegal profits

Written by Karen, Foresight News
Celsius and its former CEO Alex Mashinsky were charged by the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DOJ), the U.S. Commodity Futures Trading Commission (CFTC) and the Federal Trade Commission (FTC) on Thursday. At the same time, Bloomberg reported, citing people familiar with the matter, that Alex Mashinsky was arrested on Thursday morning local time.
Last year, since UST depegged, funds began to withdraw from Celsius at an accelerated pace. In order to cope with withdrawals and obtain liquidity, Celsius sold BTC, ETH and other assets on a large scale on the one hand, and lent stablecoins such as USDC by mortgaging assets through DeFi protocols such as AAVE and Compound on the other hand. However, the depegging of stETH and the continuous decline in the prices of ETH and BTC forced it to increase asset collateral, while the continuous withdrawal demand would reduce its liquid assets.
On June 13, 2022, Celsius suspended withdrawals, transactions, and transfers from all accounts. After that, Celsius stabilized its liquidity and operations while stating that it would explore the possibility of seeking strategic transactions and debt restructuring. In mid-July 2022, Celsius filed for bankruptcy in order to maximize value for all stakeholders.
Foresight News has compiled and sorted out the details of the charges against Celsius by the SEC, DOJ, CFTC, and FTC, so that readers can understand the charges against Celsius and the court rulings required by government agencies that oversee the U.S. securities and futures markets and ensure the implementation of the law.
U.S. Department of Justice sues Celsius
According to documents released by the U.S. Department of Justice, Curtis, Acting Assistant Director of the Federal Bureau of Investigation's New York Office, announced the unsealed indictment charging Celsius Network LLC founder and former CEO Alex Mashinsky and his subsidiary-affiliated entities with securities fraud, commodities fraud, and wire fraud. The indictment alleges that Alex Mashinsky organized a fraud scheme designed to defraud Celsius' customers and inflate the price of CEL, during which he made multiple misleading and false statements to mislead customers about core aspects of Celsius' business, including Celsius' success and profitability and the nature of Celsius' investments using customer funds.
Moreover, Alex Mashinsky personally received approximately $42 million from the sale of CEL, and Celsius Chief Marketing Officer Roni Cohen-Pavon received at least $3.6 million from the sale of CEL.
Alex Mashinsky was charged with seven counts of securities fraud, commodities fraud, wire fraud, conspiracy to manipulate the price of CEL, fraudulent scheme to manipulate the price of CEL, CEL market manipulation, and wire fraud CEL, and Roni Cohen-Pavon was charged with four counts of conspiracy to manipulate the price of CEL, fraudulent scheme to manipulate the price of CEL, CEL market manipulation, and wire fraud CEL. The following chart shows the maximum penalties faced by the defendants. (Reminder: The charges in the indictment are merely accusations, and the defendants are presumed innocent unless proven guilty.)
U.S. Attorney Williams also announced that the United States has entered into a non-prosecution agreement with Celsius, pursuant to which Celsius has agreed to accept responsibility for its role in the fraud scheme.
US SEC sues Celsius
The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against CELSIUS NETWORK LIMITED (Celsius Network) and former Celsius CEO Alex Mashinsky in the U.S. District Court for the Southern District of New York as the plaintiff.
The 51-page complaint issued by the U.S. SEC uses 299 paragraphs to detail the "evidence" of Celsius and Alex Mashinsky during the development of the platform from its founding in 2018 to June 2022, including raising billions of dollars from investors through unregistered and fraudulent issuance and sales of securities assets. Afterwards, investors were promised high returns of up to 17% through the "Earn Interest Program", and the price of CEL tokens was manipulated, making it impossible for investors to withdraw billions of dollars of crypto assets from the platform.
Notably, the SEC directly described CEL as Celsius’ own crypto-asset security and said that Celsius also claimed that the company’s liabilities exceeded its assets by approximately $1.2 billion a month after filing for bankruptcy.
The SEC’s complaint also alleges that Celsius repeatedly falsely stated that it had raised $50 million through its ICO offering, when in fact it only raised approximately $35 million.
The SEC believes that Celsius has violated multiple fraud provisions of the Securities Act and the Exchange Act, as well as engaged in unregistered securities offerings and sales, and hopes that the court will make the following rulings or orders against the defendants:
The Order finds the defendants guilty of the violations charged herein; Permanently restrains and enjoins the defendants from engaging in violations of Sections 5(a), 5(c), and 17(a) of the Securities Act [15 U.S.C. §§77e(a), 77e(c), 77q(a)], Sections 9(a)(2) and 10(b) of the Exchange Act [15 U.S.C. §§78i(a)(2), 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5]; Permanently enjoins defendant Alex Mashinsky from serving as an officer or director of any issuer of securities registered pursuant to Section 12 of the Exchange Act or required to file reports pursuant to Section 15(d) of the Exchange Act pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act; and Permanently enjoins defendant Alex Mashinsky from serving as an officer or director of any issuer of securities registered pursuant to Section 12 of the Exchange Act or required to file reports pursuant to Section 15(d) of the Exchange Act pursuant to Section 20(b) of the Securities Act. Pursuant to Sections 21(d)(1) and 21(d)(5) of the Exchange Act, the Court permanently enjoins the defendants from engaging, directly or indirectly, in the purchase, issuance, or sale of any crypto-asset security, or in the solicitation or attempt to solicit the purchase, offer, or sale of any crypto-asset security; Pursuant to Sections 21(d)(3), (5), and (7) of the Exchange Act, the Court orders the defendants to disgorge any ill-gotten gains derived from the unlawful conduct alleged in this complaint, and to pay prejudgment interest; Pursuant to Sections 20(d) of the Securities Act and 21(d) of the Exchange Act, the Court orders the defendants to pay a civil penalty in an amount determined by the Court; and Orders such other measures as the Court deems just, equitable, and appropriate in the enforcement of the federal securities laws and the protection of investors.
In the lawsuit filed by the Federal Trade Commission (FTC) in the U.S. District Court for the Southern District of New York, defendants include CELSIUS NETWORK INC., CELSIUS NETWORK LLC, CELSIUS NETWORKS LENDING LLC, CELSIUS KEYFI LLC, CELSIUS MINING LLC, CELSIUS US HOLDING LLC, CELSIUS US LLC, CELSIUS MANAGEMENT CORP., as well as Alex Mashinsky (former CEO of Celsius), Shlomi Daniel Leon (co-founder and chief strategy officer of Celsius), and Nuke Goldstein (Celsius chief technology officer).
The FTC claimed in the lawsuit that "from at least 2019 to June 2022, the defendant deceived consumers to transfer their cryptocurrency assets to the Celsius platform and lied that their deposits were safe and guaranteed to make profits for consumers in a "risk-free" way. They also guaranteed to maintain sufficient reserves for customers to withdraw the currency at any time because Celsius had "billions of dollars in liquidity". But in fact, the defendant squandered consumers' deposits, including making unsecured and unsecured loans, and did not maintain sufficient liquidity funds. Celsius even claimed that it was a safe alternative to the banking industry. "The FTC also elaborated on the false statements made by the defendant in its business activities.
The FTC therefore believes that the defendants' practices and conduct violate the FTC Act and Gramm-Leach-Bliley (GLB Act) and constitute fictitious, fraudulent, deceptive, etc., and seeks and orders monetary damages, preliminary and permanent injunctions, and other relief. The FTC stated that the defendants' illegal conduct was related to the sale and sale of cryptocurrency loans and custody services.
The FTC believes that consumers are suffering, have suffered, and will continue to suffer significant losses, and if the court does not grant an injunction, the defendants are likely to continue to harm consumers and damage the public interest. Therefore, the FTC asks the court to:
Issue a permanent injunction to prevent defendants from violating the FTC Act and the GLB Act in the future; Grant a preliminary injunction and ancillary relief, which is to prevent consumer injury during the termination of this action and preserve the possibility of effective final relief; Award monetary and other relief within the scope of the court’s authority; and Award any additional relief that the court determines is just and appropriate.
In a press release issued after the lawsuit was filed, the FTC claimed that the FTC reached a settlement with Celsius, permanently prohibiting the platform from handling consumer assets and charging three former executives with deceiving consumers into transferring cryptocurrencies to the platform by falsely promising that deposits were safe and readily available. The two companies also agreed to a $4.7 billion judgment, which will be suspended to allow Celsius to return remaining assets to consumers during bankruptcy proceedings.
However, former Celsius CEO Alexander Mashinsky and Celsius' other co-founders Shlomi Daniel Leon and Hanoch Nuke Goldstein did not agree to a settlement, and the FTC's prosecution of them will continue in federal court.
US CFTC sues Celsius
Blockworks said that according to the CFTC’s lawsuit, Celsius “acted as an unregistered commodity pool operator of the Celsius Pool, soliciting, accepting, and receiving assets for the purpose of trading in commodity interests; and Alex Mashinsky acted as an unregistered associate of the CPO to solicit the public to contribute funds to the Celsius Pool. In order to achieve the returns promised to its customers, Celsius engaged in very risky investment strategies, including extending millions of dollars in uncollateralized loans and millions of dollars in unregulated, high-risk DeFi protocols.”