CoinTelegraph reported:
On July 13, authorities arrested Alex Mashinsky, the former CEO of Celsius Network. He faces criminal and civil charges stemming from his time at the cryptocurrency lending platform, which he helped co-found in 2017.
Though the potential criminal proceedings of Mashinsky and indictment of Celsius are ongoing, the events of this week have been a culmination for many crypto users affected by the collapse of the platform. There were likely issues facing Celsius prior to the crypto market crash of 2022, but the collapse of Terra put a spotlight on the lending platform’s instability.
Founded in 2017, Celsius Network grew to have more than 1.7 million customers and $25 billion in assets under management at its peak during the global pandemic. However, a crypto market downturn shed light on the firm’s leveraged trading practices and contributed to its downfall.
The price of the Celsius (CEL) token dropped significantly in early 2022 amid stablecoins like Tether (USDT) depegging from the U.S. dollar and the fall of Terra. In June 2022, Celsius announced it would pause all withdrawals to “put Celsius in a better position to honor, over time, its withdrawal obligations,” without providing a definitive timeline.
It’s not looking good, Celsius. The firm’s bankruptcy filing has revealed several complexities in its operations. https://t.co/95asEd2fb9
— Cointelegraph (@Cointelegraph) August 26, 2022
Celsius filed for Chapter 11 bankruptcy on July 14, 2022, leaving depositors uncertain as to the fate of their assets locked up on the lending platform. Prior to and following the announcement, many state-level financial regulators in the United States issued warnings to Celsius, with calls ranging from ordering the platform to stop offering securities to alleging Mashinsky made misleading statements.
Mashinsky resigned as CEO in September 2022, saying his role had become an “increasing distraction” amid users facing “difficult financial circumstances.” Reports at the time over the firm’s bankruptcy proceedings suggested Celsius had roughly $2.8 billion in debt.
By the end of 2022, the U.S. Justice Department already had an indictment against Mashinsky, Celsius and former chief revenue officer Roni Cohen-Pavon for multiple charges related to fraud, but the proceedings remained sealed until July 2023. The Commodity Futures Trading Commission (CFTC), Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC) were likely starting to build their own cases against Celsius for violating regulations under their respective purviews.
Related: Eligible Celsius users can withdraw all ‘Distributable Custody Assets’ following court approval
In January 2023, the New York attorney general filed a lawsuit against the former CEO for allegedly making numerous “false and misleading statements” that led to investors losing billions. The CFTC and SEC followed in July, announcing civil cases against Mashinsky amid the former CEO’s criminal charges but settlements with the platform itself. The FTC issued $4.7 billion in fines to the lending platform for allegedly “squander[ing] billions in user deposits” after “duping” users.
At the time of publication, Mashinsky has pleaded not guilty to all charges, is free on a $40 million bond and is not allowed to travel except under special circumstances. Celsius debtors said they were “pleased” by the resolution of cases with federal regulators as the platform continued with its bankruptcy proceedings.
Mashinsky joins the growing number of individuals in the crypto space targeted by authorities for allegedly defrauding users. Former FTX CEO Sam Bankman-Fried remains under house arrest on bail in the U.S. until his first criminal trial in October, and Terra co-founder Do Kwon was sentenced to four months in prison in Montenegro, from where he may be extradited to the U.S. or South Korea to face fraud charges.
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