Celsius Founder Pleads Guilty to Fraud Charges
A significant development in the cryptocurrency world has occurred as Alex Mashinsky, the founder and former CEO of Celsius Network, has admitted guilt in a U.S. court to two counts of fraud. Mashinsky, aged 59, faced an indictment on July 13, 2023, encompassing seven charges related to fraud, conspiracy, and market manipulation. Prosecutors from Manhattan accused him of misleading Celsius customers to encourage investments and of artificially boosting the value of the company’s proprietary cryptocurrency token.
Details of the Guilty Plea
During a court session with U.S. District Judge John Koeltl, Mashinsky acknowledged his guilt for two out of the initial seven charges, specifically commodities fraud and a fraudulent scheme to manipulate the price of CEL, the proprietary token of Celsius. He confessed to providing customers with “false comfort” in a 2021 interview, where he claimed that Celsius had received regulatory approval for its “Earn” program—an assertion that was inaccurate. This program allowed users to deposit various cryptocurrencies, including Bitcoin and Ethereum, in exchange for weekly interest payments that could reach as high as 18 percent annually. Moreover, Mashinsky admitted he failed to inform customers about his sale of CEL tokens.
Plea Agreement and Potential Sentencing
In line with his plea agreement, Mashinsky expressed his regret, stating, “I know what I did was wrong, and I want to try to do whatever I can to make it right.” He also accepted terms that prevent him from appealing any sentence that is 30 years or less, which is the maximum penalty he faces for the two counts of fraud.
Context of the Charges
Mashinsky is among several high-profile figures in the cryptocurrency sector who have faced fraud charges following a significant decline in crypto prices in 2022, which led to the downfall of numerous firms, including the notorious FTX exchange. The value of digital currencies like Bitcoin has seen a rebound, partly fueled by hopeful sentiments regarding the expected supportive policies of U.S. President-elect Donald Trump towards the cryptocurrency industry.
Celsius Network’s Bankruptcy and Transition
Founded in 2017, Celsius Network filed for Chapter 11 bankruptcy in July 2022, a legal status that allows a company to continue operating while formulating a plan to repay creditors. This move followed a wave of customer withdrawals triggered by the plummeting cryptocurrency prices, which left many unable to access their funds. The company emerged from bankruptcy on January 31, 2023, and has shifted its focus towards Bitcoin mining.
Growth and Subsequent Challenges of Crypto Lenders
During the COVID-19 pandemic, crypto lenders like Celsius experienced rapid growth, attracting depositors with promises of easy access to loans and lucrative interest rates. These firms would then lend out cryptocurrencies to institutional investors, aiming to profit from the interest rate differential. However, Celsius was one of the first companies to declare bankruptcy in the cryptocurrency sector as a result of a sharp decline in token prices amid rising interest rates and persistent inflation. Its bankruptcy filing came shortly after similar actions taken by Three Arrows Capital and Voyager Digital.
Further Legal Developments
Federal prosecutors have accused Mashinsky and former Celsius Chief Revenue Officer Roni Cohen-Pavon of engaging in market manipulation concerning the CEL token. Cohen-Pavon entered a guilty plea in September 2023 and agreed to assist prosecutors in their ongoing investigation. Authorities have estimated that Mashinsky personally gained around $42 million from selling his CEL token holdings. In a related case, Sam Bankman-Fried, the founder of FTX, was convicted in November 2023 for stealing approximately $8 billion from customers of his exchange and was sentenced to 25 years in prison in March.
