Former Celsius CEO Alex Mashinsky arrested, charged with fraud

Two former Celsius executives including ex-CEO Alex Mashinsky have been indicted and charged with fraud in connection with the crypto lender’s collapse.

Why it matters: Mashinsky has long been under a cloud of suspicion, hit in January with a civil suit from the New York attorney general accusing him of defrauding hundreds of thousands of investors.

• The Celsius bankruptcy was the first in a series of firms toppled as the cryptocurrency markets took a precipitous fall in May 2022, following the unraveling of the Terra stablecoin.

Driving the news: Federal prosecutors Thursday detailed the indictments for Mashinsky and Roni Cohen-Pavon, Celsius' former chief revenue officer.

• Mashinsky was arrested Thursday morning, while Pavon, an Israeli citizen, is currently abroad. Bloomberg was first to report the news on Mashinsky.

Details: Mashinsky was charged with securities, commodities and wire fraud, which prosecutors allege was meant to mislead customers about core aspects of the company.

• He and Cohen-Pavon were further charged with conspiracy, securities fraud, market manipulation and wire fraud, in connection with the alleged manipulation of the price of Celsius’s proprietary token, CEL, while selling their own CEL tokens in secret at artificially inflated prices.

Meanwhile, the indictments coincide with lawsuits filed against the firm and certain executives by the U.S. Securities and Exchange Commission, and the Commodity Futures Trading Commission (CFTC).

• Seperately, the Federal Trade Commission (FTC) this morning said it reached a settlement with Celsius that will permanently ban it from handling consumers’ assets.
• But three former executives named in its suit — Mashinsky, along with Celsius’ other co-founders Shlomi Daniel Leon and Hanoch “Nuke” Goldstein — have not agreed to a settlement, and the FTC plans to pursue its case against them in federal court.

What they're saying: "The message is simple: if you lie cheat or steal or if you rip off ordinary investors to line your own pocket, we will hold you accountable," U.S. Attorney Damian Williams said today.

• The FTC’s Bureau of Consumer Protection director Samuel Levine said, “Celsius touted a new business model but engaged in an old-fashioned swindle.”
• "Defendants misrepresented Celsius's central business model and the risks to investors by claiming that Celsius did not make uncollateralized loans, the company did not engage in risky trading, and the interest paid to investors represented 80% of the company's revenue," the SEC alleged.

The SEC also alleged that Celsius misrepresented the success of the sale of its CEL token in its initial coin offering, claiming to have raised $50 million when in fact it raised far less.

Catch up fast: Celsius filed for bankruptcy one year ago, on July 13, 2022.

• Mashinsky stepped down from the firm in September.
• A consortium won approval to acquire the firm's assets in May.

Editor's note: This report has been updated with additional information throughout.