Alex Mashinsky, the former chief executive officer of bankrupt crypto lender Celsius Network Ltd., faces charges of fraud and lawsuits from three regulatory agencies regarding the company's collapse. He was also charged with attempting to manipulate cryptocurrencies in federal court in New York. Celsius, which marketed itself as a platform offering high yields (up to 17%) on crypto deposits by lending them to hedge funds, was allegedly engaged in two related investment scams: its core business model and its proprietary token. Regulators assert that Celsius couldn't generate the promised safe yields, and the token promotion involved deceptive claims about the company's financial health.
Defendants, including Mashinsky, allegedly made numerous false and misleading statements to induce investors to purchase Celsius's token and invest in its "Earn Interest Program." These misrepresentations included claims that Celsius did not make uncollateralized loans, did not engage in risky trading, and that interest paid to investors represented 80% of the company's revenue. Contrary to these assurances, Celsius routinely made unsecured loans, totaling $1.2 billion by April 2022. The company also lacked adequate capital reserves and a system to track assets and liabilities until mid-2021.
Celsius's executives, including Mashinsky, were allegedly aware of the company's financial instability. A 2021 document showed that Celsius paid out $45.7 million in interest in 2020 while generating only $42.7 million in income, indicating that more than 100% of revenue went to pay investors. The Federal Trade Commission (FTC) stated that Celsius engaged in an "old-fashioned swindle," with the company and its top executives deceiving users by falsely promising that deposits would be safe and always available, and that it maintained a $750 million insurance policy for deposits. In reality, Celsius used customer deposits to fund operations, pay other customers, borrow from other institutions, and make high-risk investments, often losing money. The FTC announced a settlement with Celsius, banning it from handling consumer assets and imposing a $4.7 billion judgment, suspended to allow asset returns to consumers in bankruptcy. The case against Mashinsky and other co-founders continues.
Celsius filed for Chapter 11 bankruptcy on July 13, 2022, reporting approximately $4.31 billion in assets against $5.5 billion in liabilities, a deficit of about $1.19 billion. This followed its decision to halt all withdrawals, swaps, and transfers across its platform on June 12, 2022. The company's liabilities were almost entirely owed to retail users, with Earn program assets totaling approximately $4.2 billion across more than 600,000 users. Despite its financial woes, executives allegedly concealed this information, with Mashinsky falsely claiming in May 2022 that "Celsius is stronger than ever" just days before freezing customer accounts. Mashinsky and other co-founders even withdrew significant sums of cryptocurrency themselves two months before the bankruptcy filing, while customers subsequently lost access to their funds. Celsius emerged from bankruptcy in January 2024, distributing over $3 billion to creditors by then, with cumulative distributions reaching approximately $4.35 billion by December 31, 2025, including cash, stock, and crypto distributions.
