Original Author: Karen, Foresight News
This Thursday, Celsius and its former CEO Alex Mashinsky are facing allegations from 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). At the same time, according to Bloomberg's sources, Alex Mashinsky was arrested on Thursday morning local time.Report.
Last year, as the UST decoupling began, funds started to rapidly withdraw from Celsius. To cope with withdrawals and obtain liquidity, Celsius sold off large amounts of BTC, ETH, and other assets on one hand, and on the other hand, it used DeFi protocols like AAVE and Compound to collateralize assets and lend stablecoins like USDC. However, the decoupling of stETH, as well as the continued decline in ETH and BTC prices, forced Celsius to increase collateralized assets, while the continuous withdrawal demands reduced its liquid assets.
On June 13, 2022, Celsius suspended withdrawals, trades, and transfers for all accounts. Subsequently, Celsius stabilized its liquidity and operations, while also expressing its exploration of strategic transactions and possible debt restructuring. In mid-July 2022, Celsius filed for bankruptcy to maximize value for all stakeholders.
Foresight News has summarized and compiled the detailed accusations from SEC, DOJ, CFTC, and FTC against Celsius, providing readers with an understanding of the accusations from government agencies overseeing the U.S. securities, futures markets, and law enforcement, as well as the court's rulings on Celsius.
DOJ's Lawsuit against Celsius
According to documents released by the U.S. Department of Justice, Curtis, the Acting Assistant Director of the Federal Bureau of Investigation New York Field Office, announced the unsealing of an indictment, charging Celsius Network LLC founder and former CEO Alex Mashinsky, as well as affiliated entities of his subsidiaries, with securities fraud, commodity fraud, and wire fraud. The charges allege that Alex Mashinsky organized a fraudulent scheme with the aim of deceiving Celsius customers and inflating the price of CEL, during which he made multiple misleading and false statements, misleading customers about core aspects of Celsius' business, including its success and profitability, as well as the investment nature of Celsius' use of customer funds.
Furthermore, Alex Mashinsky personally gained approximately $42 million from selling CEL, and Celsius Chief Marketing Officer Roni Cohen-Pavon gained at least $3.6 million from selling CEL.
Alex Mashinsky is accused of securities fraud, commodity fraud, wire fraud, conspiracy to manipulate the CEL price, fraudulent scheme to manipulate the CEL price, CEL market manipulation, and wire fraud with CEL. Roni Cohen-Pavon is accused of conspiracy to manipulate the CEL price, fraudulent scheme to manipulate the CEL price, CEL market manipulation, and wire fraud with CEL. The following image shows the maximum penalties defendants face. (Note: the charges in the indictment are allegations only and the defendants are presumed innocent unless proven guilty.)
Prosecutor Williams also announced that the US has reached a non-prosecution agreement with Celsius, whereby Celsius agrees to take responsibility for its role in the fraudulent scheme.
SEC Files Lawsuit against Celsius
The US Securities and Exchange Commission (SEC) has filed a lawsuit against CELSIUS NETWORK LIMITED (Celsius Network) and former Celsius CEO Alex Mashinsky in the Southern District of New York federal court.
In the 51-page complaint filed by the SEC, it details the "evidence" of Celsius and Alex Mashinsky's wrongdoing during Celsius' development on the platform from 2018 to June 2022, including raising billions of dollars from investors through unregistered and fraudulent securities asset issuance and sales, promising investors high returns of up to 17% through the Earn Interest Program, and manipulating the price of the CEL token, preventing investors from withdrawing billions of dollars in crypto assets from the platform.
Notably, the SEC directly refers to CEL as Celsius's own crypto-asset security and states that Celsius claimed liabilities exceeding its assets by approximately $1.2 billion one month after filing for bankruptcy.
The SEC's complaint also alleges that Celsius falsely claimed to have raised $50 million through an ICO, when in reality, it only raised approximately $35 million.
The SEC believes that Celsius has violated multiple fraud provisions of the Securities Act and Exchange Act, including engaging in unregistered securities issuance and sales, and seeks the following relief or orders from the court:
Finding that defendants have engaged in the alleged unlawful conduct;
Permanently restricts and prohibits the defendant from engaging in the following violations: 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 prohibits 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, under Sections 20(e) of the Securities Act and 21(d)(2) of the Exchange Act;
Permanently prohibits the defendant from directly or indirectly participating in the purchase, offer, or sale of any digital asset securities, or engaging in any activities to induce or attempt to induce others to purchase, offer, or sell any digital asset securities, under Sections 20(b) of the Securities Act and 21(d)(1) and 21(d)(5) of the Exchange Act;
Pursuant to Sections 21(d)(3), 21(d)(5), and 21(d)(7) of the Exchange Act, orders defendant Alex Mashinsky to disgorge any ill-gotten gains obtained from the unlawful conduct alleged in this complaint, and to pay prejudgment interest;
Pursuant to Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act, orders defendant to pay civil penalties in an amount to be determined by the court;
And further orders such other injunctive relief as the court determines is just, equitable, and appropriate for the enforcement of the federal securities laws and for the protection of investors.
FTC Files Lawsuit Against Celsius
The Federal Trade Commission (FTC) has filed a lawsuit in the United States District Court for the Southern District of New York, naming 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., and individuals Alex Mashinsky (former CEO of Celsius), Shlomi Daniel Leon (co-founder and Chief Strategy Officer of Celsius), and Nuke Goldstein (Chief Technology Officer of Celsius) as defendants.
FTC claims in the lawsuit that, "At least from 19 to June 2022, the defendant deceived consumers into transferring their cryptocurrency assets to the Celsius platform, falsely claiming that their deposits were secure and guaranteed to earn profits for consumers in a 'risk-free' manner, and guaranteeing sufficient reserves for customers to withdraw the currency at any time, because Celsius has 'billions of dollars of liquidity.' However, the defendant squandered consumers' deposits, including making unsecured loans, and did not maintain sufficient liquidity funds. Celsius even claimed to be a safe alternative institution in the banking industry." FTC also elaborated on the false statements made by the defendant in their business activities.
Therefore, FTC believes that the defendant's practices and actions violate the FTC Act and the Gramm-Leach-Bliley Act (GLB Act), and constitute fraudulent, deceptive, and misleading behavior. FTC seeks and orders monetary compensation, preliminary and permanent injunctions, and other remedies. FTC states that the defendant's illegal actions are related to the sale and offering of cryptocurrency lending and custody services.
FTC believes that consumers are suffering, have suffered, and will continue to suffer significant losses. Without an injunction from the court, the defendant is likely to continue harming consumers and harming public interest. Therefore, FTC requests the court to:
Issue a permanent injunction to prevent the defendant from future violations of the FTC Act and the GLB Act;
Grant preliminary injunction and ancillary relief to prevent potential harm to consumers during the pendency of this action and preserve the possibility of effective final relief;
Order monetary and other relief within the court's authorized jurisdiction;
Decree any additional relief as the court deems just and proper.
Following the issuance of the litigation documents, FTC, in a press release, stated that it has reached a settlement with Celsius, permanently banning the platform from handling consumer assets and accusing three former executives of deceiving consumers by falsely promising secure and readily available deposits to trick them into transferring cryptocurrency to the platform. The two companies also agreed to a $4.7 billion judgment, which will be stayed to allow Celsius to return the remaining assets to consumers in bankruptcy proceedings.
However, Celsius' former CEO Alexander Mashinsky and other co-founders of Celsius, including Shlomi Daniel Leon and Hanoch Nuke Goldstein, have not agreed to a settlement, and the Federal Trade Commission's lawsuit against them will continue in federal court.
US CFTC Sues Celsius
According to Blockworks, the CFTC's lawsuit states that Celsius "acted as an unregistered commodity pool operator for Celsius Pool, soliciting, accepting, and receiving assets for the purpose of commodity interest trading; and Alex Mashinsky acted as an unregistered associated person of that CPO, soliciting the public to contribute funds to Celsius Pool. To achieve the promised returns to customers, Celsius employed a highly risky investment strategy, including extending millions of dollars in uncollateralized loans and engaging in unregulated, high-risk DeFi protocols."
