Alex Mashinsky, former CEO of Celsius, arrested on fraud charges

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Alex Mashinsky, former CEO of Celsius, arrested on fraud charges

Alex Mashinsky, the former CEO of Cryptocurrencies Inc., was arrested Thursday on federal charges that he defrauded hundreds of thousands of clients by falsely telling them about his business before it imploded last summer. Our best stories are published on a weekly basis, and you can grab a curated selection of our best stories in your inbox every weekend. The Ukrainian-born businessman and his former company also face civil fraud charges from the SEC and the Commodity Futures Trading Commission. Mashinsky and two of his co-founders, Shlomi Daniel Leon and Hanoch Goldstein, are also facing separate fraud charges from the Federal Trade Commission.

The Justice Department is accusing Mashinsky of using a large scale fraud to trick customers into thinking about the company's success and the nature of the investments he made with their money. He also alleges that he manipulated the price of its own cryptocurrency while secretly selling it at inflated prices.

In 2018, Mashinsky founded Celsius and rapidly transformed the company into a juggernaut by claiming it as a new and more trustworthy form of bank. He said that users could safely deposit their crypto assets and earn robust returns through the company's program, which utilized their funds to generate investment income. At its peak in the fall of 2021, Celsius held $24 billion in assets, according to the Justice Department.

Even as Celsius attracted a surge of new customers during the pandemic-driven crypto boom, it was lying about its success, the riskiness of its investment strategies, its business model and the safety of customer deposits, the regulators allege. The SEC's Enforcement Director Gurbir Grewal said Mashinsky and his team were frequently completely fabricating their financials.

In addition, Mashinsky's former chief revenue officer and Roni Cohen-Pavon, the company's former head revenue officer, were indicted in a scheme to manipulate the price of Celsius's own crypto token to enrich themselves. The indictment states that Mashinsky pocketed $42 million in profit from the scheme and Cohen-Pavon made $3.6 million.

Cohen-Pavon is also charged with criminal charges but the Israeli resident is still abroad and has not been taken into custody, the Justice Department said.

The company collapsed last summer because of a wider crypto-currency meltdown. In June 2022, when a rising tide of customers ignored promises from Mashinsky that their deposits were secure and instead raced to withdraw from the platform, Celsius froze $4.7 billion in deposits from hundreds of thousands of users.

Elaborate crypto fraud collapsed of its own weight when their lies and other fraudulent conduct could no longer prop up the Celsius platform and its offerings, said Michael Brodack, the FBI's criminal division in New York.

The FTC has agreed a separate settlement with Celsius that bans the company from handling customer deposits and imposes a $4.7 billion fine that will remain suspended while the company repays customers through the bankruptcy process.