Celsius, once among the leading crypto lenders, encountered significant challenges last year and filed for Chapter 11 bankruptcy.
Alex Mashinsky, the former CEO of the once-prominent Celsius crypto lending company, and Roni Cohen-Pavon, the company’s chief revenue officer, have been apprehended on charges of committing securities fraud. CNBC reports that the arrests were made following allegations of their involvement in manipulating the price of Celsius’ crypto token, CEL, while deceiving customers about the token’s value, their activities, and the overall financial condition of the company.
The Department of Justice (DOJ) has accused Mashinsky and Cohen-Pavon of engaging in illicit activities to artificially inflate the price of CEL, leading unsuspecting investors to purchase the token at inflated prices. According to the DOJ, Mashinsky profited approximately $42 million from the sale of tokens, while Cohen-Pavon gained $3.6 million.
An excerpt from a WhatsApp conversation from October 2021, cited by the DOJ, reveals Cohen-Pavon’s response to Mashinsky’s concerns about the declining value of CEL despite an increase in Celsius’ user base. Cohen-Pavon acknowledges that the primary issue stems from people selling the token, while no significant buying activity, except by them, is occurring. Furthermore, Cohen-Pavon discloses that the token’s value had been artificially inflated by extensive spending, with millions of dollars injected each week until February 2020, solely to maintain its price. Even during the week in question, they had spent $4 million to support the price, but it continued to decline.
Prosecutors allege that Mashinsky compared CEL’s value to popular cryptocurrencies like Dogecoin and Solana’s $SB, insinuating that their value was not genuine either and was based on market speculation. The DOJ further contends that Mashinsky and Cohen-Pavon deliberately portrayed Celsius as a secure platform for storing crypto assets and earning interest, while operating it as a risky investment fund. They are accused of accepting customer funds under false pretenses, violating trust and engaging in misleading practices.
Alongside the arrests of Mashinsky and Cohen-Pavon, Celsius now faces additional complaints from three federal agencies: the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC). All three agencies accuse Celsius and Mashinsky of fraudulent activities.
A proposed settlement between Celsius and the FTC outlines the company’s participation in deceptive and unfair practices, resulting in a hefty fine of $4.7 billion. The settlement also targets Mashinsky and two former executives, holding them accountable for deceiving consumers into believing their assets would be secure and accessible at all times. Additionally, the company is prohibited from managing customer assets.
Responding to the situation, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, condemned Celsius, stating, “Celsius touted a new business model but engaged in an old-fashioned swindle.” Levine emphasized that today’s actions demonstrate that emerging technologies are subject to the law, and Celsius will face the consequences of its actions.
In 2021, the company’s chief financial officer, Yaron Shalem, was arrested in Israel, while accusations of operating as a Ponzi scheme were leveled against Celsius.