(Reuters) – Alex Machinsky, the founder and former CEO of bankrupt cryptocurrency lender Celsius Network, has been arrested and charged with fraud, a US attorney general said Thursday in New York, while three federal regulatory agencies have sued him and his company.
Machinsky, 57, has been charged with seven felony counts — including securities fraud, commodity fraud and wire fraud — while Celsius’s former chief revenue officer, Ronnie Cohen-Pavon, has been charged with four felony counts, according to the indictment, which was filed. disclosed. Thursday.
Attorneys for Mashinsky and Celsius did not immediately respond to requests for comment. Cohen-Pavon’s lawyer could not immediately be reached.
Mashinsky is one of several cryptocurrency tycoons charged in yet another blow to the industry, which was facing reckoning after plunging cryptocurrency prices led to the collapse of several companies, including stock exchange giant FTX. Its founder, Sam Bankman-Fred, was charged with fraud last year and has pleaded not guilty.
The US Attorney’s Office in Manhattan said it will hold a press conference to provide details about the charges against Mashinsky and Cohen-Pavon.
Earnings in your pocket
Celsius filed for Chapter 11 bankruptcy protection in July last year after customers rushed to withdraw deposits as cryptocurrency prices plummeted. Many have not been able to access their funds for over a year.
Machinsky and Pavon Cohen are accused of market manipulation of a New Jersey-based company’s cryptocurrency token, known as Cel, as well as a fraudulent scheme to manipulate the cryptocurrency price and wire fraud related to the manipulation of the token, according to the indictment.
Prosecutors alleged that Mashinsky personally pocketed approximately $42 million in proceeds from the sale of his token holdings.
In a related development, the U.S. Securities and Exchange Commission (SEC) sued Mashinsky and Celsius on Thursday, according to one of the lawsuits, alleging that he and his company racked up billions of dollars by selling unregistered cryptocurrency securities and misleading investors about their financial condition. privately owned company.
The SEC, along with other regulators filing lawsuits Thursday, accused Mashinsky and his company of promoting Celsius as safe — similar to traditional banks — even as they took increasingly risky steps to offer promised high returns on customer deposits.
The SEC said Celsius used emails containing phrases like “pour a glass of profits” and “earnings in your pocket” to promote its interest-earning program, which promised investors returns of up to 17%.
Regulators said that while the company lost millions of dollars as customers raced to withdraw funds, Celsius’s then-CEO continued to claim that the company was financially secure and had sufficient funds to withstand withdrawals.
Celsius was among the first bankruptcies in the cryptocurrency sector last year as currency prices exploded amid soaring interest rates and soaring inflation. It filed for bankruptcy shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did the same.
Cryptocurrency lenders like Celsius have grown rapidly as cryptocurrency prices soared during the COVID-19 pandemic. They promised easy access to loans at high interest rates to depositors, and then loaned out the tokens to institutional investors, hoping to cash in on the difference.
The Securities and Exchange Commission said Celsius engaged in “risky trading practices” and made unsecured loans, despite telling investors it did not. The SEC said the company falsely claimed to have raised $50 million from its initial sale of tokens, and claimed to have 1 million active users when in reality it only had about 500,000 depositors, many of whom are no longer active.
The US Commodity Futures Trading Commission and the Federal Trade Commission also filed a lawsuit against Celsius and Mashinsky. The Federal Trade Commission said it has reached a settlement with Celsius that would permanently ban it from handling client assets.
Regulatory lawsuits add to a series of challenges facing Celsius Network and its founder. In January, Mashinsky was sued by the New York State Attorney General, alleging that he defrauded investors of billions of dollars in digital currency by concealing the lending platform’s failing health.
The cryptocurrency industry has been on shakier ground since lawsuits filed by the Securities and Exchange Commission (SEC) against major cryptocurrency exchanges Binance and Coinbase Global (COIN.O) last month raised the risk of further regulatory challenges for the sector.
Mashinsky is a serial entrepreneur, having founded eight companies, including telecommunications company Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi for the New York City subway.
Additional reporting by Nikit Nishant in Bengaluru, Hannah Lang in Washington, and Elizabeth Hawcroft in London. Additional reporting by Chris Prentice in New York; Editing by Shingeni Ganguly, Chizu Nomiyama and Jonathan Otis
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