The creator of cryptocurrency lending platform Celsius Network has been arrested

The founder of cryptocurrency lending platform Celsius Network was detained on federal charges on Thursday.

Alexander Mashinsky created Celsius in 2018 and positioned it as a reliable, safe alternative to traditional financial institutions that would bring financial independence and economic opportunity to investors who held crypto assets.

Instead, federal prosecutors charged him with misrepresenting the company’s financial condition before it declared bankruptcy a year ago.

The Securities and Exchange Commission and the Federal Trade Commission filed companion lawsuits on Thursday, alleging that Mashinsky and Celsius « falsely promised investors a safe investment with high returns » but misled investors about the financial success of Celsius’ business and that the price of Celsius’ own crypto asset security was fraudulently manipulated.

According to the SEC lawsuit,

« Defendants also falsely claimed that Celsius had 1 million active users on Celsius’s platform. It did not. Celsius’s own internal data—which was regularly shared with Mashinsky — showed that the company only had approximately 500,000 users who had ever deposited crypto assets on the company’s platform and that many were no longer active users ».

According to Mashinsky’s defense lawyers, he « vehemently denies the allegations [and] looks forward to vigorously defending himself in court against these baseless charges. »

He entered a not guilty plea and was freed on Thursday after posting a $40 million bail.

Investors were unable to withdraw billions of dollars’ worth of cryptocurrency from Celsius’ web platform when the alleged plan fell apart in June 2022. One month later, Celsius declared bankruptcy.

The complaint claimed that

« By 2022, Celsius’ business was unsustainable, and it became clear internally that the company would fail. One employee called Celsius a ‘sinking ship,’ while another wrote that ‘there is no hope … there is no plan’ and that Celsius’s business model ‘is fundamentally broken.’ On May 21, 2022, a Celsius executive candidly acknowledged in an internal message: ‘We don’t have any profitable services' ».

The authorities claim that Celsius gave the public a separate account, telling them « that all user funds are secure, and that it continues to be open for business as normal.

U.S. Attorney Damian Williams stated on Thursday that « From its inception Celsius was taking far greater risks with customers’ money than Mashinsky advertised”. « A platform that advertised as ‘the safest place for your crypto’ left investors holding billions in losses. »

Gubir Grewal, director of SEC enforcement, continued, « Ultimately the defendants’ elaborate crypto fraud collapsed under its own weight. When it collapsed unfortunately it left thousands of investors lined up at the door of bankruptcy court. »

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