Legal Firestorm: Celsius Network Grapples with Lawsuits from Multiple Regulatory Agencies

by / ⠀Featured News / July 13, 2023
Legal Firestorm: Celsius Network Grapples with Lawsuits from Multiple Regulatory Agencies

Celsius Network, a bankrupt crypto lending business, and its former CEO and co-founder, Alex Mashinsky, are facing several lawsuits from different American entities. The U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC) have filed lawsuits against them. Mashinsky was also arrested and charged with fraud. This article will provide an in-depth analysis of the Celsius lawsuit.

Background Information

Celsius was founded in 2017 as a platform for users to earn interest on their cryptocurrency holdings. The company claimed to offer safe investments with high returns through its Earn Interest Program, promising investors as much as 18% in yield annually. Celsius also launched its native token, CEL, which was used to pay interest to users.

In November 2021, Celsius extended its Series B financing round to $750 million, which valued the company at $3.25 billion. However, Celsius declared bankruptcy in June 2022 after locking customer assets amidst crypto market turmoil that brought down other crypto enterprises. Weeks prior to the bankruptcy, an executive at Celsius wrote in an internal message on May 21, 2022, “we don’t have any profitable services,” according to the SEC filing.

The Lawsuits

SEC Lawsuit

The SEC claims Celsius Network and Mashinsky accumulated billions of dollars in funding from investors through “unregistered and fraudulent offers and sales of crypto asset securities.” “unregistered and fraudulent offers and sales of crypto asset securities.” The SEC contends that Celsius’s Earn Interest Program is a security and that it made fraudulent promises to investors about the safety and profitability of those investments.

In addition, the SEC has alleged that CEL is a security and that Celsius sold it without registering it as such. The SEC has also accused Celsius of violating its custody rule, which requires firms to hold customer assets in a way that protects them from loss or theft.

CFTC Lawsuit

The CFTC has also filed a lawsuit against Celsius, alleging that the company and Mashinsky engaged in “fraudulent and deceptive conduct” in connection with the trading of digital assets. The agency claims that Celsius operated as an unregistered futures commission merchant (FCM) and violated the Commodity Exchange Act (CEA) by failing to register as an FCM.

FTC Lawsuit

The FTC has filed a lawsuit against Celsius and Mashinsky, alleging that they engaged in “deceptive and unfair practices” with respect to the company’s advertising and marketing. The agency claims that Celsius made false and unsubstantiated claims about the safety and security of its platform and that it failed to disclose material information about its business practices.

Mashinsky’s Arrest

On Tuesday, the U.S. District Court for the Southern District of New York unsealed an indictment against Mashinsky and Celsius’ chief revenue officer, Roni Cohen-Pavon, accusing them of masterminding a “scheme to defraud customers of Celsius Network.” On Thursday, Bloomberg reported, law enforcement officials arrested and accused Mashinsky with fraud.

The Future of Celsius

After Celsius declared bankruptcy in June 2022, a company called Fahrenheit purchased the company. This group of prospective purchasers is led by the venture capital company Arrington Capital and comprises US Bitcoin Corp., Proof Group, Steven Kokinos, and Ravi Kaza. Redistributing Celsius’s liquid assets to account holders is the group’s primary objective. Mining operations, alternate investments, and the company’s institutional lending portfolio are all being handed over to a new set of managers.

Conclusion

The Celsius lawsuit is a significant development in the crypto industry, as it highlights the need for regulatory oversight and transparency. Celsius’ alleged deceptive practices and failure to register as an FCM and securities issuer demonstrate the risks associated with investing in unregulated crypto platforms. As the crypto industry continues to grow, it is essential for companies to comply with regulatory requirements and protect their customers’ assets. The outcome of the Celsius lawsuit will likely set a precedent for future regulatory action in the crypto industry.

FAQ

What is Celsius Network?

Celsius Network, a crypto lending firm founded in 2017, is now bankrupt . The company claimed to offer safe investments with high returns through its Earn Interest Program, promising investors as much as 18% in yield annually.

What are the allegations against Celsius?

The SEC claims Celsius Network and Mashinsky accumulated billions of dollars in funding from investors through “unregistered and fraudulent offers and sales of crypto asset securities.” The CFTC has also filed a lawsuit against Celsius, alleging that the company and Mashinsky engaged in “fraudulent and deceptive conduct” in connection with the trading of digital assets. The FTC has filed a lawsuit against Celsius and Mashinsky, alleging that they engaged in “deceptive and unfair practices” with respect to the company’s advertising and marketing.

What is the future of Celsius?

After filing for bankruptcy in June 2022, Celsius was acquired by a group called Fahrenheit. The goal of the group is to redistribute the liquid assets of Celsius to the account holders. A new management group will oversee the company’s mining operations, alternative investments, and institutional loan portfolio.

About The Author

Kimberly Zhang

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

x