Alex Mashinsky misrepresented Celsius’ business and financial position to woo customers into “unbanking themselves,” and then manipulated Celsius’ native token to enrich himself, the DOJ said.
Celsius founder Alex Mashinsky was sentenced to 12 years in federal prison Thursday, five months after pleading guilty to commodities fraud and intent to manipulate the value of the Celsius token.
The former captain of industry was indicted on seven counts of fraud in July 2023, approximately one year after his firm, one of the biggest in the cryptocurrency industry, filed for bankruptcy after facing liquidity issues.
Approximately $4.7 billion in customer funds were locked up at the time of Celsius’ bankruptcy. It was one of several failures that characterized the crypto industry in 2022, after the fall of the Terra/Luna stablecoin ecosystem and the bankruptcy of crypto hedge fund Three Arrows Capital, but before the bankruptcies of competitors Voyager Digital, FTX and BlockFi.
Customer funds were inaccessible for 18 months until the bankruptcy was resolved in early 2024. But the long wait had some customers in dire straits, with CNBC reporting that former customers the outlet spoke with were homeless or suicidal.
“Alexander Mashinsky targeted retail investors with promises that he would keep their ‘digital assets’ safer than a bank, when in fact he used those assets to place risky bets and to line his own pockets,” said Jay Clayton, U.S. Attorney for the southern district of New York, in a prepared statement. “In the end, Mashinsky made tens of millions of dollars while his customers lost billions. America’s investors deserve better.”
“The case for tokenization and the use of digital assets is strong but it is not a license to deceive. The rules against fraud still apply, and the SDNY will hold those who flout them accountable for their crimes,” Clayton said.
According to the Department of Justice, Mashinsky repeatedly misrepresented Celsius’ business and financial position to woo customers into “unbanking themselves” and instead invest their money in crypto through Celsius. His luring was successful: At its peak, Celsius held $25 billion in assets.
But the misrepresentation of Celsius’ native token, CEL, was part of a “yearslong scheme” in which Mashinsky and others “manipulated CEL’s price by spending hundreds of millions purchasing it on the open market to artificially inflate its value,” the DOJ said. “At times, they used customer deposits to fund these market purchases, without disclosing that to customers. Without aggressive manipulation, CEL’s price would have been significantly lower.”
Cameron Crews, a Celsius customer, spoke at Mashinsky’s sentencing.
“I am one of Mr. Mashinsky’s many victims. I want to express the serious damage that has been caused. We have been gored. We are being told lies,” Crewes said, according to Inner City Press. “He seems to not get the gravity of what he has done. People’s lives have been ruined. Some have died waiting for justice.”
Mashinsky sobbed in the court room, according to Inner City Press.
“I tried to protect my community and I failed … I never wanted to hurt anyone. I know victims want to see me punished,” he said.
Mashinsky’s 12-year sentence is less than half of that of FTX founder and former CEO Sam Bankman-Fried, who was sentenced to 25 years for seven counts of fraud and conspiracy connected to FTX’s November 2022 downfall. Another former crypto king, Binance founder Changpeng Zhao, served four months in federal prison last year for violating anti-money laundering laws; and Do Kwon, founder of Terra/Luna creator Terraform Labs, is currently facing up to 130 years in prison for nine counts of fraud and conspiracy tied to $40 billion in investor losses.
In addition to prison time, Mashinsky was sentenced to three years of supervised release, ordered to pay a $50,000 fine and ordered to forfeit more than $48 million.
Source: Banking Dive
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