Celsius Network's Founder Accused of Fraud and Market Manipulation
According to an indictment just unsealed in in the Southern District of New York, Alexander Mashinsky, founder and CEO of Celsius Network (Celsius), has been charged with orchestrating a fraudulent scheme to deceive customers about the true state of the company's affairs. Furthermore, he's alleged to have inflated the price of Celsius's native token, CEL.
According to the indictment, from around 2018 to June 2022, Mashinsky, along with Celsius's Chief Revenue Officer, Roni Cohen-Pavon, and other employees, engaged in illicit activities to mislead customers and inflate CEL's price. This practice allowed the public to buy CEL at exaggerated prices, while Mashinsky and Cohen-Pavon reportedly profited by selling their own CEL tokens, knowing that they did not reflect the token's genuine market value.
The government charges that Celsius, a cryptocurrency platform, promoted itself as the safest place for customers' crypto, offering returns on their assets, loan provisions, and custody services. The government further charges that it successfully attracted retail investors with Mashinsky's regular public misrepresentations about Celsius's business stability, growth, and profitability, resulting in an exponential increase in its customer base. By the fall of 2021, Celsius reportedly held approximately $25 billion in assets.
In addition to creating a false image of a safe and secure institution the government alleges that Mashinsky, with Cohen-Pavon, purportedly misled customers about the success of CEL's initial coin offering (ICO) in 2018, claiming to have raised $50 million, while the actual amount was only about $32 million.
The indictment goes further, accusing Mashinsky, Cohen-Pavon, and others at Celsius of orchestrating a years-long scheme to deceive customers and market participants regarding CEL's market value. They allegedly manipulated the price of CEL by making the company spend hundreds of millions of dollars buying CEL on the open market, thus artificially inflating its price.
In mid-2022, as the crypto market experienced a downturn, Celsius found itself in a precarious financial position. Despite this, the government charges Mashinsky continued to reassure customers about Celsius's stability, even as he withdrew most of his personal crypto deposits from the platform. On June 12, 2022, Celsius halted all customer withdrawals, leaving customers with approximately $4.7 billion worth of assets inaccessible. The company filed for Chapter 11 bankruptcy on July 13, 2022.
Count One: Securities Fraud against Alexander Mashinsky
Count one of the indictment charges Mashinsky with securities fraud from 2018 through June 2022. The indictment asserts that Mashinsky, using interstate commerce, the mails, and a facility of a national securities exchange, willfully and knowingly employed manipulative and deceptive devices in relation to the purchase and sale of a security, in violation of federal regulations.
Count Two: Commodities Fraud against Alexander Mashinsky
Count two of the indictment charges Mashinsky with commodities fraud from 2018 through June 2022. The indictment states that Mashinsky, willfully and knowingly, directly and indirectly, used manipulative and deceptive devices in connection with a swap, a contract of sale of a commodity in interstate commerce, and for future delivery on and subject to the rules of a registered entity. This action is in contravention of federal regulations.
Count Three: Wire Fraud against Alexander Mashinsky
Count three of the indictment r charges Mashinsky with wire fraud from 2018 through June 2022. The indictment alleges that Mashinsky devised and intended to devise a scheme to defraud, and to obtain money and property through false and fraudulent pretenses, representations, and promises. Specifically, he is accused of engaging in a fraudulent scheme to induce investors and borrowers to provide their assets to Celsius as part of Celsius's Earn and Borrow programs, to persuade investors to receive their rewards payments from Celsius in CEL, and to encourage investors to purchase CEL in the market. Mashinsky is accused of making false and misleading statements about Celsius's financial condition and operations. The violations mentioned in this count are of Title 18, United States Code, Sections 1343 and 2.
Count Four: Conspiracy to Manipulate the Price of CEL against Alexander Mashinsky and Roni Cohen-Pavon
Count four of the indictment charges Mashinsky and co-defendant Roni Cohen-Pavon with conspiracy to manipulate the price of the CEL token from 2019 through June 2022. They are accused of conspiring to commit securities fraud, market manipulation, and wire fraud. They are alleged to have engaged in a scheme to defraud investors in the CEL token by artificially manipulating the market for the CEL token, and by making false and misleading statements about Celsius's purchases of the CEL token and about Mashinsky's own sales of the CEL token.
In furtherance of this conspiracy, several overt acts were committed, including instructions to purchase CEL token in the market to manipulate its price, personal purchase of CEL by Mashinsky to support its price, and discussions about a plan to manipulate the price of CEL. False and misleading public statements were made regarding Celsius's market purchases of CEL and Mashinsky's own sales of CEL. The laws violated, according to this count, include Title 15, United States Code, Sections 78j(b), 78ff, and 78i(a)(2); Title 17, Code of Federal Regulations, Section 240.10b-5; and Title 18, United States Code, Sections 1343 and 371.
Count Five (Fraudulent Scheme to Manipulate the Price of CEL):
Count Five charges that from 2019 to 2022, Mashinsky and Cohen-Pavon, using deceptive practices in connection with the purchase and sale of a security, the CEL token. They allegedly defrauded investors by manipulating the CEL market and making false statements about Celsius's purchases of CEL and Mashinsky's personal sales of the token.
Count Six (Market Manipulation of CEL Token):
Defendants are accused in Count Six of carrying out transactions in the CEL token from 2019 to 2022 with the intent to manipulate its price. Their alleged objective was to create an impression of active trading in CEL and to raise its price, thereby inducing others to purchase the token.
Count Seven (Wire Fraud - CEL Token Manipulation):
From 2018 to 2022, the defendants are charged with devising a fraudulent scheme to defraud investors in the CEL token. The alleged scheme involved artificially manipulating the CEL market and making false statements about Celsius's purchases of CEL and Mashinsky's personal sales of the token. They are accused of transmitting these false statements using interstate wires, some of which transited through the Southern District of New York.
Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.