NEW YORK, July 13 (Reuters) – Alex Mashinsky, the founder and former CEO of bankrupt cryptocurrency lender Celsius Network, pleaded not guilty on Thursday to U.S. fraud charges that he misled customers and artificially inflated the value of the company’s decent cryptocurrency token.
Three federal regulatory agencies also sued Mashinsky and Celsius in connection with the case.
Mashinsky was charged with seven criminal counts — including securities fraud, commodities fraud and wire fraud — according to an indictment unsealed earlier Thursday.
He is one of several crypto moguls to be indicted in yet another blow to the industry, which is in the midst of a settlement after a fall in crypto prices led to the collapse of several companies, including exchange giant FTX. The company’s founder, Sam Bankman-Fried, was charged with fraud last year, and has pleaded not guilty.
Mashinsky, 57, arrived in federal court in Manhattan for his trial wearing a gray polo shirt, jeans and without handcuffs.
U.S. Magistrate Judge Ona Wang said he would be released on a $40 million bond secured by his Manhattan residence.
“Whether it’s old-school fraud or a new-school crypto scheme, it doesn’t matter. It’s all fraud to us,” US Attorney Damian Williams said at a news conference detailing the charges.
‘RESULTS IN YOUR POCKET’
Founded in 2017, Celsius filed for Chapter 11 bankruptcy protection in July 2022 after customers rushed to withdraw deposits as crypto prices fell. Many have not been able to access their money.
Crypto lenders like Celsius grew rapidly as crypto prices rose during the COVID-19 pandemic. They promised easy loan access and eye-popping interest rates to depositors, then lent tokens to institutional investors, hoping to profit from the difference.
Celsius was among the first in a series of bankruptcies in the cryptocurrency sector last year as token prices plummeted amid rising interest rates and stubbornly high inflation. It filed for bankruptcy shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did the same.
Mashinsky and Celsius’ former chief revenue officer, Roni Cohen-Pavon, were charged with market manipulation of the company’s crypto token, known as Cel, as well as a fraudulent scheme to manipulate the price of the cryptocurrency and bank fraud related to manipulation of the token, according to the indictment.
Prosecutors alleged that Mashinsky also personally reaped approximately $42 million in proceeds from selling his holdings of the Cel token. Celsius was not charged.
US Attorney Williams said at the press conference that Cohen-Pavon is abroad and is an Israeli citizen, but declined to comment on whether the former Celsius executive would be extradited.
The US Securities and Exchange Commission (SEC) also sued Mashinsky and Celsius on Thursday, according to a lawsuit, alleging that he and his firm raised billions of dollars through the sale of unregistered crypto securities and misled investors about the financial condition of the privately held ones. company.
The SEC, along with other regulatory agencies that also filed lawsuits Thursday, accused Mashinsky and his company of touting Celsius as safe — like a traditional bank — even as they took increasingly risky steps to deliver promised returns of as much as 17 %.
Celsius used emails with phrases like “Pour yourself a cup of profits” and “Profits in your Pocket” to promote the interest-earning program.
While the firm lost millions of dollars as customers ran to withdraw money, Mashinsky and Celsius continued to argue that the company was financially secure and had enough funds to meet withdrawals, regulators said.
The SEC also said Celsius engaged in “risky trading practices” and made unsecured loans, despite telling investors it did not. The company also falsely claimed to have raised $50 million from its initial token sale, claiming to have 1 million active users, when in fact it only had about 500,000 depositors, many of whom were no longer active, the SEC said.
The US Commodity Futures Trading Commission and the Federal Trade Commission also sued Celsius and Mashinsky. The FTC said it has reached a settlement with Celsius that will permanently bar it from handling customers’ assets.
The Justice Department entered into a non-prosecution agreement with Celsius, in which the company accepted responsibility for its role in the alleged schemes and promised to continue to cooperate with investigators, Williams said.
Thursday’s lawsuit adds to a series of challenges for the Celsius Network and its founder. In January, the New York state attorney general sued Mashinsky, also alleging fraud.
The crypto industry has been on even shakier ground since the SEC sued crypto exchanges Binance and Coinbase Global ( COIN.O ) last month raising the risk of further regulatory challenges for the sector.
However, the industry got some cheer in another federal court in New York on Thursday. In a landmark ruling, a judge ruled that Ripple Labs did not violate federal securities law by selling its XRP token on public exchanges, a victory that sent the cryptocurrency’s value soaring.
Reporting by Hannah Lang in Washington, Luc Cohen and Chris Prentice in New York and Niket Nishant in Bengaluru; additional reporting by Elizabeth Howcroft in London; Editing by Chizu Nomiyama, Michelle Price and Jonathan Oatis
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Reports of the Federal Courts of New York. Has previously worked as a correspondent in Venezuela and Argentina.
Hannah Lang 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. She graduated from the University of Maryland, College Park and lives in Washington, DC.