July 13 (Reuters) – Alex Mashinsky, the founder and former CEO of bankrupt cryptocurrency lender Celsius Networks, has been arrested and charged with fraud, a U.S. attorney in New York said on Thursday morning, as three federal regulators sued him and his company.
Mashinsky, 57, was charged with seven felony counts — including securities fraud, commodities fraud and wire fraud — while Celsius’ former chief revenue officer, Ronnie Cohen-Pavon, was charged with four. Thursday.
Attorneys for Mashinsky and Celsius did not immediately respond to requests for comment, and Cohen-Pavon’s attorney could not immediately be reached.
The US attorney’s office in Manhattan said it would hold a press conference at 11:30 a.m. ET (1530 GMT) to provide details on the charges against Mashinsky and Cohen-Pavon.
Mashinsky and Cohen-Pavon were charged with manipulating the Hoboken market of the New Jersey-based company’s crypto token, Cell, as well as a scheme to manipulate the price of the cryptocurrency and wire fraud related to the manipulation of the token. According to the charge sheet.
In a related development, the US Securities and Exchange Commission on Thursday sued Mashinsky and Celsius, alleging that he and Celsius raised billions of dollars by selling unregistered crypto asset securities and misled investors about the company’s financial success. .
The US Commodity Futures Trading Commission and the Federal Trade Commission filed lawsuits against Celsius and Mashinsky. The FTC says it has reached a settlement with Celsius that permanently bans it from handling customers’ assets.
Regulators have accused Mashinsky and his company of portraying Celsius as safe and more like a traditional bank, taking risky steps to offer high-yielding interest rates on customer deposits.
As Celsius lost millions of dollars and customers scrambled to get their funds back, the then-CEO and his company maintained that Celsius was financially secure and had enough funds to pay back the money, regulators said.
Celsius, a New Jersey-based crypto lender, filed for Chapter 11 bankruptcy protection in July of last year after freezing customer withdrawals.
Celsius was the first in a string of bankruptcies in the cryptocurrency industry last year. It filed for bankruptcy shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did the same.
The SEC’s lawsuit alleges that Celsius and Mashinsky raised billions of dollars from investors through “unregistered and fraudulent offerings and sales of crypto asset securities” and misled investors about Celsius’ financial success.
The company said Celsius engaged in “dangerous business practices” and made unsecured loans despite telling investors it had not. The company falsely claimed to have raised $50 million by selling its token and claimed to have 1 million active users.
Lawsuits by regulators add to the ongoing challenges for the Celsius network and its founder. In January, New York State’s attorney general sued Mashinsky, alleging that he defrauded investors out of billions of dollars in digital currency by covering up the failing health of the lending platform.
The crypto industry has been on shaky ground since the SEC’s lawsuits against major crypto exchanges Binance and Coinbase Global ( COIN.O ) last month raised risks of further regulatory challenges for the sector.
Mashinsky is a serial entrepreneur, having founded eight companies, including telecommunications provider Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi to New York City’s subways.
Reporting by Nikate Nishant in Bangalore, Hannah Long in Washington and Elizabeth Howcroft in London; Additional reporting by Chris Prentice in New York; Editing by Shinjini Ganguli, Chisu Nomiyama and Jonathan Otis
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Niket Nishant Key news and quarterly earnings reports from Wall Street’s biggest banks, card companies, financial technology and asset managers. He also covers major IPOs and late-stage venture capital funding on US exchanges, along with news and regulatory developments in the cryptocurrency industry. His writing appears…
Hannah Long covers financial technology and cryptocurrency, including the businesses that drive the industry and the policy developments that govern the sector. Hannah previously worked at American Banker, where she covered banking regulation and the Federal Reserve. He graduated from the University of Maryland, lives in College Park and Washington, DC.
Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the “Web3” of payments.