Celsius and its former CEO Alex Mashinsky have been hit with a barrage of federal charges from various U.S. agencies, including federal criminal charges from the Department of Justice and civil lawsuits from the SEC, CFTC, and FTC.
Federal prosecutors have charged Mashinsky with fraud and allege that he along with the company's chief revenue officer, Roni Cohen-Pavon, and other employees, orchestrated "a scheme to inflate the price of Celsius's proprietary token, CEL."
They also allege that the firm's marketing materials depicted Celsius as a "modern-day bank" when in actual fact, per the DOJ's allegations, Mashinsky "operated Celsius as a risky investment fund, taking in customer money under false and misleading pretense, and turning customers into unwitting investors in a business far riskier and far less profitable" than what was represented.
Both Mashinsky and Cohen-Pavon were arrested on Thursday, prosecutors in New York confirmed today.
Meanwhile, the SEC is suing the bankrupt crypto lender and co-founder Mashinsky, alleging securities fraud and other violations, per a court filing on Thursday.
Before going under last summer, Celsius offered users high-interest rates for depositing their idle crypto via its Earn Interest Program. This program was touted as "safe investment with high returns."
Now, the SEC alleges that Celsius and Mashinsky "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 Commission alleges that these claims were false and that this information was "hidden from investors" before Celsius officially filed for bankruptcy in July 2022.
The SEC is demanding that Mashinsky be prohibited from buying, offering, or selling cryptocurrencies, to be disgorged of "all ill-gotten gains in the form of any benefits of any kind derived from the illegal conduct alleged" in the complaint, and for the former CEO pay civil penalties to be determined by the court.
The CFTC has also issued its own lawsuit, alleging that Mashinsky and Celsius defrauded investors and "engaged in increasingly risky investment strategies" via multi-million-dollar uncollateralized loans."
The filing alleges that the former CEO "engaged in a scheme to defraud hundreds of thousands of customers by misrepresenting the safety and profitability of its digital asset-based finance platform."
And as if that weren't enough, the FTC also announced a settlement with Celsius, banning the firm and affiliates from offering or promoting any product or service that would involve user assets. "The companies also agreed to a judgment of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings," the agency said.
Mashinsky and co-founders Schlomi Daniel Leon and Hanoch Goldstein did not agree to a settlement. The FTC will take its case against them to federal court.
Neither Celsius nor Mashinsky immediately responded to Decrypt's request for comment.
Editor's note: This article was updated after publication to include more details regarding the various lawsuits filed against Celsius today.