On Thursday morning, Alex Mashinsky, the founder of the now-bankrupt cryptocurrency firm Celsius Network, was apprehended and charged with defrauding customers and providing false information about his company's business model.
According to federal prosecutors, Mashinsky, 57, deceived customers into thinking that Celsius was a secure place to invest their money when, in reality, it carried significant risks. Mashinsky is also facing lawsuits from regulatory bodies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC).
The arrest took place at Mashinsky's residence in New York, as confirmed by a source familiar with the investigation. The charges against him include wire fraud, commodities fraud, and manipulation of securities prices. Additionally, charges were filed against Roni Cohen-Pavon, the company's chief revenue officer, who is accused of wire fraud and price manipulation, among other offenses.
Celsius Network, established in 2018, gained prominence as a cryptocurrency bank, offering customers exorbitant interest rates and managing billions of dollars in deposits. However, the company collapsed last year, leaving over 500,000 users devastated and resulting in the freezing of approximately $4.7 billion in customer assets. Mashinsky resigned from his position in September, citing increasing distractions.
Prosecutors allege that Mashinsky and the company repeatedly lied to investors about their interest generation methods, customer numbers, and deposit insurance. They assert that Celsius operated as a risky investment fund rather than a safe bank, deceiving customers with false and misleading claims.
In a settlement with the FTC, Celsius agreed to pay $4.7 billion in restitution to customers affected by the bankruptcy, although payments will be halted during the bankruptcy proceedings.
Mr. Mashinsky's lawyer has not yet responded to requests for comment, while it remains unknown who is representing Mr. Cohen-Pavon. Notably, Mashinsky's arrest adds to the growing list of cryptocurrency executives facing scrutiny from law enforcement following the market crash in the previous year.
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