Things are coming full circle for the former CEO of insolvent crypto lender Celsius, Alex Mashinsky, as he was reportedly arrested on July 13 following an investigation into the company’s collapse, according to Bloomberg’s sources.
Celsius had filed for bankruptcy on July 14 of the previous year, and its assets were recently acquired by crypto consortium Fahrenheit.
The U.S. Securities and Exchange Commission (SEC) has also filed a lawsuit accusing Mashinsky of securities fraud. The lawsuit was filed on Thursday morning in federal court in Manhattan, but detailed information about the complaint is not yet available.
In addition to the SEC lawsuit, Mashinsky and Celsius may face legal action from the U.S. Commodity Futures Trading Commission (CFTC). Investigators at the CFTC have reportedly concluded that the bankrupt lender and its CEO violated regulatory rules by misleading investors.
Celsius was among the prominent crypto firms that experienced a collapse last year. The company had gained popularity by offering high interest rates on digital-asset deposits. However, after the TerraUSD stablecoin’s collapse and a downturn in the digital-asset markets, Celsius faced significant financial losses, leading to its inability to meet customer withdrawal demands.
The investigation into the troubled crypto lender began after New York State Attorney General Letitia James sued Mashinsky on January 5. The lawsuit alleged that the former CEO had misled investors, resulting in billions of dollars in losses.
In May, Mashinsky moved to dismiss the New York State complaint filed against him, which seeks to recompense everyone who lost money in the collapse of his crypto lender, which once had $30 billion in assets.
Mashinsky argued in a response that the crypto products offered by Celsius were neither securities nor commodities, and that James cherry-picked Mashinsky’s statements from hundreds of hours of YouTube broadcasts, “falsely depicting Celsius’s exceptional transparencies with its users as a deceptive tactic.”
Instead, the former chief executive of the crypto firm pins the downfall on Terra and FTX.
“In May 2022, the prices of Terra and luna crashed by more than 99% and caused cryptocurrency to plunge, wiping out billions in value, and the industry to suffer significant losses, including for many of Celsius’s institutional counterparties. One particularly impactful event for Celsius was the unexpected and extremely rapid mass withdrawals of assets from Celsius’s platform, during which it lost over $672 million in assets over the course of several days,” Mashinsky says in his motion.
Celsius and its former CEO faced difficulties starting in June of the previous year when the platform suddenly halted withdrawals. Subsequently, securities regulators from five U.S. states launched an investigation into Celsius on June 16, 2022, and the company filed for bankruptcy within a month.
Mashinsky then tendered his resignation as chief executive of the firm and in each of the firm’s direct and indirect subsidiaries, in both directorships and other roles in September.
Mashinsky’s arrest and the lawsuit against Celsius come shortly after the SEC filed lawsuits against crypto exchanges Binance and Coinbase.
Information for this briefing was found via Bloomberg, Coinbase, Coin Telegraph, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.