CEO of bankrupt crypto lender Celsius is arrested after probe into its collapse

The former CEO of the bankrupt crypto lender Celsius has been arrested and charged with fraud.

Alex Mashinsky, 57, is being sued by three regulatory agencies – the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission – over the collapse of his company.

Celsius was one of a number of cryptocurrency businesses that imploded in the industry meltdown last summer. 

In June 2022 it froze around $8 billion in deposits from hundreds of thousands of customers as users rushed to withdraw their holdings. The firm then filed for bankruptcy, declaring a $1.19 billion deficit. 

Prosecutors allege that the crypto businessman ‘orchestrated a scheme to defraud customers of Celsius Network LLC and its related entities’ between 2018 an June 2022, court documents unsealed on Thursday reveal. 

Alex Mashinsky, 57, has been arrested and charged with fraud

Mashinsky pictured with his wife Krissy Mashinsky in 2020 prior to the company’s collapse

The former CEO of the bankrupt crypto lender is facing lawsuits from three federal agencies 

The SEC believes the Ukraine-born businessman falsely promised investors a safe investment, mislead them about the company’s financial success and fraudulently manipulated the price of the company’s own crypto token. 

They also believe the billions of dollars the company raised from investors through crypto tokens should have been registered as securities with the agency. 

The Federal Trade Commission has also slapped Celsius with a $4.7 billion fine that it must pay after it is finished refunding its customers through the bankruptcy process. 

Celsius had gained popularity for offering interest rates as high as 17% on digital-asset deposits. 

However, when the supposed stablecoin TerraUSD collapsed, Celsius was left with a large hole on its balance sheet and could not meet customer withdrawals and eventually declared itself bankrupt.

Regulators believe that Mashinsky made misleading statements about Celsius’s financial position, such as when he falsely claimed the company had made $50 million from an initial coin offering when it had in fact raised less than 65% of that goal. 

The federal agencies moving against Mashinsky mark the latest chapter in a series of civil and criminal crypto cases this year. 

Most high-profile among them is the case against Sam Bankman-Fried, a 31-year-old former billionaire, who rode a boom in digital assets to accumulate an estimated net worth of $26 billion.

He became an influential political and philanthropic donor before his company, FTX, declared bankruptcy.

Celsius froze around $8 billion in deposits from hundreds of thousands of customers last June as users rushed to withdraw their holdings

FTX, the bankrupt crypto exchange founded by Sam Bankman-Fried, is considering resuming operations under new management as it seeks to pay back creditors

Federal prosecutors have alleged that Bankman-Fried stole billions of dollars in customer funds to plug losses at his philanthropic venture Alameda, buy luxury properties in the Bahamas, and splash out huge political donations.

FTX has estimated that approximately $8.7 billion in customer assets were misappropriated from the exchange.

In November, FTX filed for Chapter 11 bankruptcy protection in the United States following its spectacular collapse that sent shivers through the digital assets industry.

In the days leading up to the failure, customers of the crypto exchange withdrew billions of dollars, hobbling the firm’s liquidity.

A rescue deal with rival exchange Binance also fell through, precipitating crypto’s highest-profile collapse in recent years.

Bankman-Fried has pleaded not guilty to 13 counts of fraud and conspiracy, while acknowledging that FTX had inadequate risk management.