NEW YORK, July 13 (Reuters) – Alex Mashinsky, founder and former CEO of bankrupt cryptocurrency lender Celsius Network, pleaded not guilty Thursday to U.S. fraud charges that he misled prospects and artificially inflated the worth of his firm’s propriety crypto token.
Three federal regulatory businesses additionally sued Mashinsky and Celsius in reference to the case.
Mashinsky was charged with seven felony counts – together with securities fraud, commodities fraud and wire fraud – in accordance to an indictment unsealed earlier on Thursday.
He’s one of a number of crypto moguls to be indicted in one other blow for the business, which is present process a reckoning after a hunch in crypto costs led to the collapse of a number of firms, together with trade big FTX. That firm’s founder, Sam Bankman-Fried, was charged with fraud final yr, and has pleaded not guilty.
Mashinsky, 57, arrived in federal court docket in Manhattan for his arraignment sporting a grey polo shirt, denims and no handcuffs.
U.S. Justice of the Peace Choose Ona Wang mentioned he can be launched on a $40 million bond secured by his Manhattan residence.
“Whether or not it is old-school fraud or some new-school crypto scheme, it does not matter one bit. It is all fraud to us,” U.S. Legal professional Damian Williams mentioned at a press convention detailing the charges.
‘PROFITS IN YOUR POCKET’
Based in 2017, Celsius filed for Chapter 11 bankruptcy protection in July 2022 after prospects rushed to withdraw deposits as crypto costs fell. Many have been unable to entry their funds.
Crypto lenders reminiscent of Celsius grew rapidly as crypto costs surged in the course of the COVID-19 pandemic. They promised straightforward mortgage entry and eye-popping rates of interest to depositors, then lent out tokens to institutional buyers, hoping to revenue from the distinction.
Celsius was among the many first in a series of bankruptcies within the cryptocurrency sector final yr as token costs cratered amid rising rates of interest and stubbornly excessive inflation. It filed for chapter shortly after Singapore-based crypto hedge fund Three Arrows Capital and rival crypto lender Voyager Digital did likewise.
Mashinsky and Celsius’ former chief income officer, Roni Cohen-Pavon, have been charged with market manipulation of the corporate’s crypto token, referred to as Cel, in addition to a fraudulent scheme to manipulate the value of the cryptocurrency and wire fraud associated to the manipulation of the token, in accordance to the indictment.
Prosecutors alleged Mashinsky additionally personally reaped roughly $42 million in proceeds from promoting his holdings of the Cel token. Celsius was not charged.
U.S. Legal professional Williams mentioned on the press convention that Cohen-Pavon is situated overseas and is an Israeli citizen, however declined to touch upon whether or not the previous Celsius government can be extradited.
The U.S. Securities and Alternate Fee (SEC) additionally sued Mashinsky and Celsius on Thursday, in accordance to a court docket submitting, alleging he and his agency raised billions of {dollars} by way of the sale of unregistered crypto securities and misled buyers in regards to the monetary state of the privately held firm.
The SEC, together with different regulatory businesses which additionally filed lawsuits Thursday, accused Mashinsky and his firm of touting Celsius as secure – akin to a conventional financial institution – whilst they took more and more dangerous steps to ship promised returns of as a lot as 17%.
Celsius used emails with phrases like “Pour Your self a Cup of Income” and “Income in your Pocket” to promote its interest-earning program.
Whereas the agency misplaced tens of millions of {dollars} as prospects raced to withdraw funds, Mashinsky and Celsius continued to declare it firm was financially safe and had sufficient funds to meet withdrawals, regulators mentioned.
The SEC additionally mentioned Celsius engaged in “dangerous buying and selling practices” and made uncollateralized loans, regardless of telling buyers it did not. The corporate additionally falsely claimed to have raised $50 million from its preliminary token sale, and claimed to have 1 million energetic customers when actually it solely ever had round 500,000 depositors, many of whom have been now not energetic, the SEC mentioned.
The U.S. Commodity Futures Buying and selling Fee and the Federal Commerce Fee additionally sued Celsius and Mashinsky. The FTC mentioned it had reached a settlement with Celsius that may completely ban it from dealing with prospects’ property.
The Justice Division entered right into a non-prosecution settlement with Celsius, during which the corporate accepted accountability for its function within the alleged schemes and pledged to proceed cooperating with investigators, Williams mentioned,
Thursday’s lawsuits add to a collection of challenges for Celsius Network and its founder. In January, New York state’s attorney general sued Mashinsky, additionally alleging fraud.
The crypto business has been on even shakier floor for the reason that SEC sued crypto exchanges Binance and Coinbase International (COIN.O) final month raised dangers of additional regulatory challenges for the sector.
Nevertheless, the business received some cheer in one other federal court docket in New York on Thursday. In a landmark ruling, a choose determined Ripple Labs did not violate federal securities legislation by promoting its XRP token on public exchanges, a win that despatched that cryptocurrency’s worth hovering.
Reporting by Hannah Lang in Washington, Luc Cohen and Chris Prentice in New York and Niket Nishant in Bengaluru; further reporting by Elizabeth Howcroft in London; Enhancing by Chizu Nomiyama, Michelle Value and Jonathan Oatis
Our Requirements: The Thomson Reuters Trust Principles.
Founder of crypto lender Celsius Network pleads not guilty to fraud charges www.reuters.com 2023-07-14 22:40:49
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