Celsius Founder And Former Chief Revenue Officer Charged In Connection With Multibillion-Dollar Fraud And Market Manipulation Schemes

 

Alexander Mashinsky, Founder and Former Chief Executive Officer of Celsius, Charged with Defrauding Celsius Customers, and Mashinsky and Roni Cohen-Pavon, Former Celsius Chief Revenue Officer, Charged with Manipulating the Market for Celsius Crypto Token

Celsius Network LLC Accepts Responsibility and Pledges to Continue Cooperating

 Damian Williams, the United States Attorney for the Southern District of New York, and Christie M. Curtis, the Acting Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging ALEXANDER MASHINSKY, the founder and former Chief Executive Officer of Celsius Network LLC and their affiliated entities (collectively, “Celsius”), with securities fraud, commodities fraud, and wire fraud for defrauding customers and misleading them about core aspects of the company he founded, including Celsius’s success, profitability, and the nature of the investments Celsius made using customer funds.  MASHINSKY and RONI COHEN-PAVON, Celsius’s former Chief Revenue Officer, are further charged with conspiracy, securities fraud, market manipulation, and wire fraud for illicitly manipulating the price of CEL, Celsius’s proprietary crypto token, all while secretly selling their own CEL tokens at artificially inflated prices.

On June 12, 2022, Celsius announced it was halting all customer withdrawals from the Celsius platform, at which time hundreds of thousands of Celsius customers — many of whom were retail investors — still had approximately $4.7 billion worth of crypto assets on the Celsius platform, none of which they could access.  On or about July 13, 2022, Celsius filed for Chapter 11 bankruptcy.  MASHINSKY was arrested earlier today and will be presented this afternoon before U.S. Magistrate Judge Ona T. Wang.  COHEN-PAVON, an Israeli citizen and resident, is currently abroad.  The case has been assigned to U.S. District Judge John G. Koeltl.

U.S. Attorney Williams also announced today that the United States has entered into a non-prosecution agreement (the “Agreement”) with Celsius pursuant to which Celsius has agreed to accept responsibility for its role in the fraudulent schemes.  In entering into the Agreement, the Office considered the fact that Celsius is in Chapter 11 bankruptcy proceedings and is making efforts to maximize recovery for victims in connection with the bankruptcy, as well as the fact that Celsius dramatically improved its cooperation after the Government brought certain production failures to the attention of the Special Committee of Celsius’s Board of Directors.

FBI Acting Assistant Director in Charge Christie M. Curtis said: “As alleged in the indictment, Mashinsky and Cohen-Pavon knowingly engaged in complex financial schemes – deliberately misrepresenting the company’s business model and criminally manipulating the value of Celsius’s proprietary crypto token CEL – while serving in leadership roles at Celsius.  The FBI will continue to ensure that anyone committing fraud and deceiving the public through the misrepresentations of a business’s financial standing or practice is held accountable.

According to the allegations in the Indictment unsealed today in Manhattan federal court and the stipulated facts in the Agreement:[1]

Celsius was a crypto asset platform that, among other things, allowed its customers to earn returns on their crypto assets in the form of weekly “rewards” payments, to take loans secured by their crypto assets, and to custody their crypto assets.  Celsius billed itself as the “safest place for your crypto” and urged potential customers to “unbank” themselves by moving their crypto assets to Celsius.  Celsius’s primary public offering was its “Earn” program, through which Celsius offered to deploy customers’ crypto assets to generate investment returns.  In addition to its Earn program, Celsius offered retail investors a “Custody” program and a “Borrow” program, which allowed customers to receive retail loans in exchange for posting their crypto assets as collateral with Celsius. 

MASHINSKY directly marketed Celsius to retail customers located in the United States and abroad.  Throughout his tenure as CEO of Celsius, MASHINSKY repeatedly made public misrepresentations regarding core aspects of Celsius’s business and financial condition in order to induce retail customers to provide their crypto assets to Celsius and continue to use Celsius’s services.  MASHINSKY misrepresented, among other things, the safety of Celsius’s yield-generating activities, Celsius’s profitability, the long-term sustainability of Celsius’s high rewards rates, and the risks associated with depositing crypto assets with Celsius.

As MASHINSKY falsely portrayed Celsius as a safe and secure institution, Celsius’s customer base grew exponentially.  Many of those customers were retail investors rather than large institutions.  By in or about the fall of 2021, Celsius had grown to become one of the largest crypto platforms in the world, purportedly holding approximately $25 billion in assets at its peak. 

MASHINSKY, COHEN-PAVON, and others working at Celsius also orchestrated a yearslong scheme to mislead customers and market participants regarding the market value and interest in Celsius’s proprietary crypto token CEL.  They did so by manipulating the price of CEL through causing Celsius to spend hundreds of millions of dollars purchasing CEL in the open market with the objective of artificially supporting and inflating the price of CEL.  At various times during MASHINSKY’s tenure, MASHINSKY, COHEN-PAVON, and their co-conspirators also caused Celsius to use its own customer deposits to fund these market purchases of CEL in order to prop up CEL’s price, without disclosing this fact to Celsius’s customers. 

Without Celsius’s aggressive and illegal price manipulation, the price of CEL would have been drastically lower.  As COHEN-PAVON wrote to MASHINSKY in a private message exchanged during the scheme: “[T]he issue is that people are selling [CEL] and no one is buying except for us,” adding, “[t]he main problem was that the value was fake and was based on us spending millions (~8M a week and even more until February 2020) just to keep it where it is.” 

To further the scheme to manipulate CEL, MASHINSKY also repeatedly made false and misleading public statements concerning the nature of Celsius’s market activity and the extent to which Celsius itself was responsible for artificially supporting and inflating the price of CEL.  In certain instances, MASHINSKY and other Celsius executives also personally purchased CEL for the purpose of artificially supporting CEL’s price.

Artificially inflating the price of CEL allowed MASHINSKY, COHEN-PAVON, and other Celsius executives to sell their own CEL holdings for a substantial profit.  MASHINSKY personally reaped approximately $42 million in proceeds from his sales of CEL, and COHEN-PAVON personally reaped at least $3.6 million in proceeds from his sales of CEL.  At various times, MASHINSKY made false and misleading public statements about his own sales of CEL, claiming that he was not selling CEL, when, in reality, he was taking advantage of the upward price manipulation he had orchestrated by contemporaneously selling huge quantities of his CEL on the market, including, on occasion, to Celsius itself.  

In the lead up to the June 12, 2022, “Pause” of Celsius customer withdrawals, MASHINSKY continued to assure Celsius customers that Celsius was in a strong financial position and had sufficient liquidity to meet all customer withdrawal demands.  Even as he made these statements, however, MASHINSKY had removed approximately $8 million worth of his own non-CEL crypto assets from the Celsius platform.

A chart containing the names, ages, residences, charges, and maximum penalties for the individual defendants is below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

Mr. Williams praised the outstanding work of the FBI.  Mr. Williams further thanked the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, each of which today filed parallel civil actions against MASHINSKY.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Adam Hobson, Allison Nichols, and Noah Solowiejczyk are in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Defendant	Age	Residence	Charges	Maximum   Potential   Sentences
MASHINSKY	57	New York, New York	Securities fraud  (Count One)  Commodities fraud  (Count Two)  Wire fraud  (Count Three)  Conspiracy to commit securities fraud, market manipulation, and wire fraud  (Count Four)  Securities fraud  (Count Five)  Market manipulation  (Count Six)  Wire fraud  (Count Seven)	20 years     10 years     20 years     Five years        20 years     20 years     20 years
COHEN-PAVON	36	Israel	Conspiracy to commit securities fraud, market manipulation, and wire fraud  (Count Four)  Securities fraud  (Count Five)  Market manipulation  (Count Six)  Wire fraud  (Count Seven)	Five years        20 years     20 years     20 years

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth in this release constitute only allegations, and every fact described should be treated as an allegation