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Former Celsius CEO Alex Mashinsky is arrested in New York, Celsius’ new management agrees to one of the largest FTC settlements ever, and Binance faces an executive exodus.
Alex Mashinsky, former CEO of bankrupt crypto lending platform Celsius, has been arrested and appeared in court in New York, facing criminal charges of wire fraud, securities fraud and commodities fraud.
In a seven-count indictment, Mashinsky, 57, is also charged with conspiracy to manipulate the price of CEL, the proprietary token that Celsius used to prop up its balance sheet prior to its collapse.
Roni Cohen-Pavon, 36, Celsius’ former chief revenue officer, was the only other person named in the indictment. Cohen-Pavon is a citizen and resident of Israel, and is currently abroad.
In a hearing on Thursday (July 13), Mashinsky pleaded not guilty to all charges and agreed to face trial in October.
If found guilty, Mashinksy could serve a maximum of 115 years in prison, while Cohen-Pavon could serve up to 60.
From 2018 to 2022, Mashinsky is alleged to have made $42m from his sales of CEL after artificially inflating its price using customer deposits. Cohen-Pavon is alleged to have made $3.2m from CEL sales.
As the public face of Celsius, Mashinsky is also accused of defrauding customers as to the safety and profitability of Celsius throughout his time as CEO.
In his public statements, Mashinsky marketed Celsius as the “safest place for your crypto” and “safer” than a bank. He also said customers could withdraw their assets “at any time” because Celsius had “billions of dollars in liquidity”.
At its peak in 2021, Celsius had about $25bn in customers assets on the platform, but by the time of its collapse in July 2022, this had fallen to about $4.7bn.
Damian Williams, US attorney for the Southern District of New York (SDNY), said his office worked quickly to deliver the indictment exactly one year to the day that Celsius filed for bankruptcy.
“This case may appear complicated, but the message we sent today is quite simple. If you rip off ordinary investors to line your own pockets, we will hold you accountable,” he said.
“Whether it’s old-school fraud or some new-school crypto scheme, it doesn’t matter one bit. It’s all fraud to us, and we’ll be here to catch it.”
An FTC settlement for the record books
On the same day as Mashinsky’s arrest, the Federal Trade Commission (FTC) announced one of its largest settlements ever following a complaint against Celsius and its affiliates, now under new management.
As per an FTC statement, the Celsius companies agreed to a settlement of $4.7bn, but the payment is suspended while Celsius continues to return assets to customers through bankruptcy.
The Celsius companies also agreed to a permanent ban on the offer or sale of any product or service that could be used to deposit, exchange, invest or withdraw customer assets.
The settlement, which is the second-largest in FTC history, effectively puts an end to the Celsius network and ensures a best-case scenario for customers whose assets have been stuck with Celsius since it filed for bankruptcy.
The only other larger settlement with the FTC was in 2019, when Facebook agreed to pay a $5bn penalty for deceiving users about the platform’s privacy controls.
Mashinsky and two other Celsius co-founders were also sued by the FTC for “duping” customers and “squandering” billions in user deposits, but the trio did not reach a settlement and the case will continue.
Meanwhile, the Securities and Exchange Commission (SEC) and the Commodity Trading and Futures Commission (CFTC) both filed similar lawsuits against Celsius and Mashinsky.
Binance rattled by executive exodus
It has been a bad week for the HR department at Binance, following the resignations of three senior executives from Binance’s global arm and one from Binance US.
The highest-profile resignation was that of Patrick Hillman, Binance’s chief strategy officer, who said he was leaving the company due to the birth of his second child and was leaving “on good terms”.
“I’ve taken this company through a lifetime of industry crises and regulatory challenges — from Luna to Three Arrows Capital (3AC) to FTX,” he said. “Despite all of these challenges, the company has continued to grow and thrive.”
During his two-year stint at the company, Hillman had also served as chief communications officer, and was known for his public Twitter spats with crypto sceptics such as John Reed Stark, a former head of internet enforcement at the SEC.
In his resignation statement on Twitter, Hillman said he “respects and supports” Binance CEO Changpeng Zhao and is “incredibly grateful” to have worked under his leadership.
However, this account was disputed by Fortune magazine, where a reporter claimed to have knowledge of a personal feud between Hillman and Zhao.
Specifically, the reporter claimed that Hillman had quit Binance due to concerns over Zhao’s handling of several lawsuits and a criminal probe that Binance is currently facing in the US.
The same was said of Steven Christie, senior vice president of compliance at Binance, who took to Twitter to dispute Fortune’s reporting.
“I’ve been in crypto compliance since 2015 when I joined Xapo, spending the last six years straight leading and growing the compliance functions at Kraken and Binance without a break,” he said.
“At this point I am simply tired, and according to my wife fat, and need to lose some weight. Apparently I need to start helping around the house, do chores and start making dinner a few times a week.
“As any ‘happily’ married person knows,” he added, “happy wife = happy life.”
Christie likewise thanked Zhao and applauded his choice of Noah Perlman, former chief operating officer and chief compliance officer at Gemini, as his replacement.
Other resignations include Binance’s general counsel Hon Ng and chief business officer Yibo Ling. This follows an earlier resignation of Matthew Price, senior director of investigations.
Price, a former Internal Revenue Service (IRS) agent, was hired in 2021. Perlman also has former ties to the US Justice Department, having served as an assistant attorney in the Eastern District of New York (EDNY).
