NEW YORK, July 13 (Reuters) – Alex Machinsky, founder and former CEO of bankrupt cryptocurrency lender Celsius Network, pleaded not guilty Thursday to US fraud charges that he misled customers and artificially increased the value of his company’s cryptocurrency.
Three federal regulatory agencies have also sued Mashinsky and Celsius in connection with the case.
Machinsky has been charged with seven felony counts — including securities fraud, commodity fraud and wire fraud — according to the indictment unsealed earlier Thursday.
He is one of several cryptocurrency magnates charged in yet another blow to the industry, which is subject to reckoning after a slump in cryptocurrency prices led to the collapse of several companies, including stock exchange giant FTX. That company’s founder, Sam Bankman-Fred, was accused of fraud last year, and has pleaded not guilty to the charge.
Mashinsky, 57, arrived in Manhattan federal court for his trial wearing a gray polo shirt, jeans and no handcuffs.
U.S. Magistrate Judge Una Wang said he would be released on the basis of a $40 million bond obtained by his Manhattan home.
“Whether it’s old-school fraud or a new cryptocurrency scheme, it doesn’t matter one thing. It’s all fraud to us,” US Attorney Damian Williams said at a press conference detailing the charges.
Earnings in your pocket
Founded in 2017, Celsius filed for Chapter 11 bankruptcy protection in July 2022 after customers scrambled to withdraw deposits as cryptocurrency prices plummeted. Many did not have access to their money.
Cryptocurrency lenders like Celsius have grown rapidly as cryptocurrency prices soared during the COVID-19 pandemic. They promised easy access to loans at amazing interest rates to depositors, and then loaned out the tokens to institutional investors, hoping to cash in on the difference.
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, as well as rival crypto lender Voyager Digital, did likewise.
Ronnie Cohen-Pavon, former chief revenue officer of Mashinsky and Celsius, has been accused of market manipulation with the company’s cryptocurrency token known as Cel, as well as a fraudulent scheme to manipulate the price of cryptocurrency and wire fraud related to cryptocurrency manipulation. Code according to the indictment.
Prosecutors alleged that Mashinsky personally pocketed approximately $42 million in proceeds from the sale of his token holdings. Celsius is not charged.
US Attorney Williams said at the news conference that Cohen-Pavon is abroad and is an Israeli citizen, but declined to comment on whether the former Celsius CEO would be extradited.
The U.S. Securities and Exchange Commission (SEC) also sued Mashinsky and Celsius on Thursday, according to a court filing, alleging that he and his company amassed billions of dollars by selling unregistered cryptocurrency securities and misleading investors about the private company’s financial condition. a company.
The SEC, along with other regulators who also filed 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 returns of up to 17%. %.
Celsius used emails containing phrases like “pour yourself a cup of profits” and “earnings in your pocket” to promote its interest-earning program.
Regulators said that while the company lost millions of dollars as customers raced to withdraw funds, Mashinsky and Silesius continued to claim that their company was financially secure and had enough funds to stand up to withdrawals.
The SEC also said Percentage 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.
The Department of Justice entered into a non-prosecution agreement with Celsius, Williams said, in which the company accepted responsibility for its role in the alleged schemes and pledged to continue cooperating with investigators.
The lawsuits filed Thursday add to a series of challenges facing Celsius Network and its founder. In January, the New York State Attorney General sued Mashinsky, also alleging fraud.
The cryptocurrency industry has been on shakier ground since the SEC sued cryptocurrency exchanges Binance and Coinbase Global (COIN.O) last month, raising the stakes of regulatory challenges for the sector.
Still, the industry got some encouragement in yet another New York federal court on Thursday. In a landmark ruling, a judge determined that Ripple Labs did not violate federal securities law by selling the XRP token on public exchanges, a win that sent the cryptocurrency soaring in value.
Additional reporting by Hannah Lang in Washington, Luke Cohen and Chris Prentice in New York, and Nikit Nishant in Bengaluru; Additional reporting by Elizabeth Howcroft in London; Editing by Chizu Nomiyama, Michelle Price and Jonathan Otis
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