The SEC claims Celsius and Mashinsky engaged in market manipulation to boost the company’s cryptocurrency price.
Alex Mashinsky, the founder and former CEO of bankrupt crypto lender Celsius Network, has been arrested and charged with fraud by two US regulators.
The Securities and Exchange Commission (SEC) has charged both the company and Mashinsky with failing to register the sales of Celsius’s crypto lending product, making false and misleading statements to investors and engaging in market manipulation with its cryptocurrency, called CEL.
The US authority alleges that from “at least 2020”, Celsius engaged in fraud to artificially increase and support the price of CEL through “manipulative buy backs” that were “far in excess of its publicly disclosed purchases”. The SEC claims this served to benefit both the company and Mashinsky.
Founded in 2017, Celsius functioned in a similar way to a regular bank – except its assets were based on the promise of ‘high-yield’ crypto instead of fiat money. The CEL token plummeted in value last year and by June 2022, Celsius paused all transactions.
The following month, a former investment manager for Celsius filed a lawsuit that accused the crypto lender of manipulating the market.
“Celsius lied to investors by presenting itself as a safe investment opportunity and a chance to gain financial freedom, but behind the scenes, the company operated a failing business model and took significant risks with investors’ crypto assets,” said SEC enforcement division director Gurbir S Grewal.
“Thousands of retail investors have experienced significant financial hardship as a result of Celsius’s and Mashinsky’s illegal conduct, and today we are holding Celsius and Mashinsky responsible for defrauding thousands of retail investors.”
The commission also alleges that Celsius offered investors an “Earn Interest Programme”, which meant investors tendered their crypto assets to Celsius in exchange for interest payments. The SEC claims no registration was filed and no exemption from registration was available, which meant this programme lacked protections.
Meanwhile, the US Federal Trade Commission (FTC) has announced a settlement with Celsius that will permanently ban the company from handling consumer assets. Under this settlement, the crypto lender will pay $4.7bn, though this will be suspended to “permit Celsius to return its remaining assets to consumers in bankruptcy proceedings”.
This commission also charged Machinsky and his two Celsius co-founders who were former company executives of allegedly tricking consumers into transferring cryptocurrency onto the platform by “falsely promising that deposits would be safe and always available”. These three have not agreed to the settlement and face a federal court case as a result.
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Celsius Network founder Alex Mashinsky at Web Summit 2021 in Portugal. Image: Web Summit via Flickr (CC BY 2.0)