Founder of Crypto Lending Celsius Network Arrested, Charged with Fraud

July 13 (Reuters) – Alex Mashinsky, the founder and former CEO of bankrupt cryptocurrency lender Celsius Networks, has been arrested and charged with fraud, a U.S. attorney in New York said on Thursday, while three federal regulators sued him and his company.

Mashinsky, 57, was charged with seven felony counts — including securities fraud, commodities fraud and wire fraud — while Celsius’ former chief revenue officer, Ronnie Cohen-Pavon, was charged with four. Thursday.

Attorneys for Mashinsky and Celsius did not immediately respond to requests for comment, and Cohen-Pavon’s attorney could not immediately be reached.

Mashinsky is one of several crypto moguls to be blamed for another blow to the industry, which is experiencing a reckoning after the collapse in crypto prices led to the collapse of several companies, including exchange giant FTX. Its founder, Sam Bankman-Fried, was charged with fraud last year and has pleaded not guilty.

The U.S. attorney’s office in Manhattan said it would hold a news conference to provide details on the charges against Mashinsky and Cohen-Pavon.

‘Profit in your pocket’

Celsius filed for Chapter 11 bankruptcy protection in July of last year after customers rushed to take out deposits as crypto prices plummeted. Many have been unable to access their funds for over a year.

Mashinsky and Cohen-Pavon were charged with a New Jersey-based company’s alleged market manipulation of a crypto token called Cel, a fraudulent scheme to manipulate the price of the cryptocurrency, and wire fraud related to the manipulation of the token. Accusation.

Prosecutors allege that Mashinsky personally made about $42 million from selling his Cell token.

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In a related development, the US Securities and Exchange Commission (SEC) on Thursday sued Mashinsky and Celsius, in court filings alleging that he and his company raised billions of dollars by selling unregistered crypto securities and misled investors about the financial position. Private company.

The SEC, along with other regulators, filed lawsuits Thursday, accusing Mashinsky and his company of making Celsius safe — like a traditional bank — and taking increasingly risky measures to deliver promised high yields on customer deposits.

Celsius used emails with phrases like “Pour Yourself a Cup of Profits” and “Profits in Your Pocket” to promote its interest-earning scheme, which promised investors returns of up to 17%.

Although the company lost millions of dollars as customers sought refunds, the then-CEO and Celsius said the company was financially secure and had enough funds to pay back the money, regulators said.

Celsius was the first in a string of bankruptcies in the cryptocurrency industry last year. It filed for bankruptcy shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did the same.

Crypto lenders like Celsius grew rapidly as crypto prices surged during the Covid-19 pandemic. They promised easy credit access and high interest rates to depositors, who then issued tokens to institutional investors, hoping to profit from the difference.

The SEC said Celsius engaged in “risky trading practices” and made unsecured loans despite telling investors it had not. The company falsely claimed to have raised $50 million from its initial token sale and claimed to have 1 million active users.

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The US Commodity Futures Trading Commission and the Federal Trade Commission sued Celsius and Mashinsky. The FTC said it has reached a settlement with Celsius that permanently prohibits it from handling customers’ assets.

Lawsuits by regulators add to the ongoing challenges for the Celsius network and its founder. In January, New York State’s attorney general sued Mashinsky, alleging that he defrauded investors out of billions of dollars in digital currency by covering up the failing health of the lending platform.

The crypto industry is still reeling since the SEC’s lawsuits against major crypto exchanges Binance and Coinbase Global ( COIN.O ) last month raised risks of further regulatory challenges for the sector.

Mashinsky is a serial entrepreneur, having founded eight companies, including telecommunications provider Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi to New York City’s subways.

Reporting by Nikate Nishant in Bangalore, Hannah Long in Washington and Elizabeth Howcroft in London; Additional reporting by Chris Prentice in New York; Editing by Shinjini Ganguli, Chisu Nomiyama and Jonathan Otis

Our Standards: Thomson Reuters Trust Principles.

Niket Nishant News and quarterly earnings reports from Wall Street’s biggest banks, card companies, financial technology and asset managers. He also covers major IPOs and late-stage venture capital funding on US exchanges, along with news and regulatory developments in the cryptocurrency industry. His writing appears…

Hannah Long covers financial technology and cryptocurrency, including the businesses that drive the industry and the policy developments that govern the sector. Hannah previously worked at American Banker, where she covered banking regulation and the Federal Reserve. He graduated from the University of Maryland, lives in College Park and Washington, DC.

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Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds, and the “Web3” of payments.

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