Bankrupt Crypto Lender Celsius Sued by SEC and CFTC, Former CEO Arrested

Alex Mashinsky, the former CEO of bankrupt crypto lender Celsius, has been arrested as he and his firm face lawsuits from US financial regulators.

Lawsuits from the US Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC) surround the crypto lender's allegedly misleading statements about the state of your business.

Celsius and Mashinsky sued by SEC, CFTC. Settlements with the FTC

Mashinsky, 57, is accused of orchestrating a scheme to defraud customers of Celsius Network and its affiliated entities, as stated in the unsealed indictment. The SEC, CFTC, and FTC have filed lawsuits against Mashinsky and the company. Mashinsky was arrested on Thursday morning, Bloomberg informed.

Celsius was known for offering high interest rates on digital asset deposits, but the crypto lender faced financial difficulties and filed for bankruptcy following the collapse of the TerraUSD stablecoin and a crypto market downturn in May 2022 that left it unable to honor customer withdrawals.

The SEC court filing said Celsius faced losses of more than $800 million in 2021 and approximately $165 million in losses in the first quarter of 2022. By May 2022, an employee referred to Celsius as a "sinking ship." in internal discussions, while one anonymous executive stated bluntly: "We don't have profitable services."

Despite this troubling financial situation, the FTC's complaint alleges that Mashinsky and others continued to solicit new customers based on misleading claims about Celsius' financial stability, including a $750 million deposit insurance policy. Similar allegations are made in the CFTC's complaint against Mashinsky and Celsius.

The FTC settled with Celsius, permanently barring it from handling customer assets. A $4.7 billion judgment payment was stayed in interest of returning client assets.

Furthermore, the SEC alleged that Mashinsky and Celsius made misleading statements to entice investors to buy their proprietary CEL token and participate in the Earn Interest program, which promised high returns on crypto deposits. Clients who made use of the CEL token were able to gain access to higher rates of return on their crypto deposits.

Mashinsky is also accused of misrepresenting Celsius' financial performance, including falsely claiming that the company raised $50 million from an initial coin offering. These allegations come after New York Attorney General Letitia James sued Mashinsky in January, accusing him of defrauding New York investors by providing false information about the lender's safety.

The actions against Celsius and Mashinsky this week are part of a broader trend of civil and criminal cases targeting the cryptocurrency industry, with several industry players facing charges for alleged misconduct. This includes FTX Co-Founder Sam Bankman-Fried, who has been accused of mishandling client funds and misleading investors. Besides, Binance, coin baseand kraken all have faced SEC lawsuits this year.

In May, some of Celsius's assets were bought by a consortium of auction investors as part of bankruptcy proceedings.