Alex Mashinsky, the co-founder and former CEO of collapsed crypto lender Celsius Network, was arrested in New York on Thursday and subsequently sued by the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission. The 57-year-old was charged with securities fraud, as well as commodities fraud, wire fraud, and attempting to manipulate cryptocurrency prices, according to the Department of Justice indictment, Bloomberg reported. Meantime, the price of Celsius ( CEL-USD ) token issued by Celsius rose 4% to $0.17, compared with $0.77 a year ago, in late morning trading. The prosecutors alleged that Mashinsky and Celsius -- which at one point held investors' crypto balances to the tune of over $13B -- defrauded customers by misrepresenting how it lent out customers' tokens, among other unlawful business practices. The crypto platform agreed to pay a $4.7B settlement with the FTC, according to a release, an amount that will not be paid until the company can return its remaining assets to customers in bankruptcy proceedings. Celsius, founded in 2018, was promoted by Mashinsky as an alternative to traditional lenders that could enable people to earn double-digit returns by lending out their crypto. But, in the wake of broader market downturn, the company was forced to halt withdrawals in June 2022, and then it filed for bankruptcy protection shortly thereafter. A portion of its customers' assets are still locked up in bankruptcy, but the company recently got approved to sell its altcoin holdings or convert them to bitcoin ( BTC-USD ) or ethereum ( ETH-USD ) this month. “Celsius touted a new business model but engaged in an old-fashioned swindle,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement . The concurrent SEC proceedings alleged that Mashinsky and Celsius duped investors into buying CEL ( CEL-USD ) and depositing money into the company's Earn Interest program that promised exceptionally high returns on customers' crypto deposits. The Wall Street regulator also accused the defendants of misrepresenting "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," adding that "none of these claims was true." Shortly before its demise, Celsius suffered significant losses, as its risky investment strategies (e.g. extending millions of dollars in uncollateralized and in unregulated decentralized finance agreements) fared poorly in the wake of a crypto bear market. Even so, the CFTC alleged , Mashinsky "continued to promote the safety and viability of Celsius, and failed to disclose these losses to customers. Even worse, despite its worsening financial position, Defendants continued to solicit new customers with the same misrepresentations that digital asset commodities deposited with Celsius were safe and would earn customers high yield returns." In January, Mashinsky was sued by New York state's attorney general for defrauding hundreds of thousands of investors out of billions of dollars worth of digital coins.
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