What the Criminal Charges Mean for the Crypto Industry for Celsi’s Ex-CEO

Celsius was one of the top lenders in the crypto ecosystem during the bull market of 2021. At its peak, it served 1.7 million customers and managed $25 billion in assets.

It all collapsed in June 2022 amid major flaws in the company’s work structure.

The 2022 bear market, particularly the Terra ecosystem implosion in May, exposed Celsius’ fragile business model that was highly dependent on its original CEL (THE) token and the high stakes rewards it offers.

CEL’s price dropped dramatically in June after the crypto lender’s relationship with Terra became public, after Celsius sent a huge amount of funds from the platform and suspension of user selection.

Just a month later, on July 14, a troubled company filed for Chapter 11 bankruptcy. At the time of filing, it had roughly $2.7 billion in debt.

On June 16, 2022, securities regulators from five US states opened an investigation into Celsius. The company’s former CEO, Alex Mashinsky, he eventually resigned from his position on September 27 amid rumors that he was attempting to flee the United States.

By the end of 2022, the US Department of Justice, the Commodity Futures Trading Commission (CFTC), the Federal Trade Commission (FTC), and the Securities and Exchange Commission began investigating the Celsius collapse and Mashinsky’s role in it.

Mashinsky faces criminal charges

The first significant blow to the troubled crypto lender came on July 5, 2023, when The CFTC has closed its investigation and allegedly Celsius and Mashinsky violated several US regulations and misled investors.

July 13 SEC filed a complaint against Celsi and Mashinski, which accuses them of violating securities laws by raising billions of dollars through unregistered and fraudulent offerings. So does the FTC fined Celsius $4.7 billion and terminated its business operations.

On the same day, the Ministry of Justice accused the former CEO with “securities, commodities and wire fraud for defrauding customers and deceiving them about key aspects of the company he founded.”

Celsia’s former chief revenue officer Roni Cohen-Pavon and Mashinsky are “further charged with conspiracy, securities fraud, market manipulation and wire fraud for illegally manipulating the price of CEL, Celsia’s proprietary crypto token, while secretly selling their own CEL tokens at artificially inflated prices.”

Damian Williams, the United States attorney for the Southern District of New York, said his office is not seeking charges against Celsius, specifically saying it reached a no-prosecution agreement with the firm because it “agreed to accept responsibility for its role in the fraudulent schemes” and helping customers obtain funds.

Mashinsky was arrested and released on $40 million bond later that day.

With these allegations and enforcement actions, Celsius and its former executives join a growing list of crypto firms that will come under the scrutiny of US regulators in 2023.

Lawsuit against Binance blames the exchange offering unregistered securities and being internally mismanaged. Another against Coinbase claims that the exchange offers brokerage services for unregistered securities without a license.

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This killing of so-called “regulation through enforcement” has led many market experts to argue that regulators need to be clearer in their approach to the crypto industry.

Mriganka Pattnaik, CEO of crypto services provider Merkle Science, told Cointelegraph:

“The response from US regulators remains uncertain, but the prosecution could have far-reaching implications for the cryptocurrency industry. Allegations of wire fraud, securities fraud, and price manipulation are raising concerns about similar activities at other crypto firms, which may influence regulators to increase their oversight and enforcement efforts.

“Going forward, the Celsius case will likely lead to more severe legal and financial consequences for non-compliant cryptocurrency firms,” she said.

Prosecuting bad actors benefits the crypto industry

Many cryptocurrency advocates believe that prosecuting the former CEO of Celsius could be good for the crypto industry. Punishing bad actors sends a clear signal that fraud will not be tolerated, even if it is committed under the guise of a relatively unregulated industry.

Yamina Sara Chekroun, Ramp’s head of US legal for payment infrastructure company Web3, told Cointelegraph: “The consumer-oriented actions of regulators should be applauded in light of the devastating losses users have suffered over the past two months due to mismanagement and a general lack of standardized risk disclosure requirements. That being said, we should continue to honor due process, whether on Wall Street or in crypto.”

Kadan Stadelmann, chief technology officer of open-source blockchain technology provider Komodo, believes that regulators will likely want to make an example of Celsius and other firms that have allegedly broken the law, especially those operating in the United States. However:

“The recent killing of crypto-related prosecutions will ultimately help the industry evolve to a point where users don’t have to worry about the safety of their crypto assets from potential misuse or theft by humans.”

Adam Ettinger, a partner at law firm FisherBroyles, told Cointelegraph that crypto lenders and fintech firms that cheat investors, lie about their financial products or manipulate markets should expect enforcement action.

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“If the misconduct is serious enough, managers can face prosecution and arrest. I hope that fewer crypto companies will ‘face the heat’ because the bad actors have already either left or perished, and those who might consider fraud will notice the enforcement activities and fly the right way,” he added.

Most of the lawsuits against accused bad actors have come after ecosystem implosions and losses that have proven disastrous for many consumers and cast a shadow of doubt on the entire ecosystem. Regulatory crackdowns against such bad actors thus often become the last hope for investors and consumers to get some of their funds back.

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