The arrest of Alex Mashinsky, the former CEO of Celsius Network, marked a significant turning point in the history of the lending platform.
Founded in 2017, Celsius experienced remarkable growth during the global pandemic, amassing over 1.7 million customers and managing $25 billion in assets at its peak.
However, the platform faced challenges even before the cryptocurrency market crash of 2022. The collapse of Terra further exposed the instability of Celsius, leading to a series of events that ultimately led to its downfall.
The value of Celsius’ native token (CEL) suffered a significant decline in early 2022 due to the depegging of stablecoins like Tether from the U.S. dollar and the fall of Terra.
In response, Celsius announced a temporary suspension of all withdrawals to improve its ability to fulfill withdrawal obligations, but without specifying a definitive timeline.
On July 14, 2022, Celsius filed for Chapter 11 bankruptcy, leaving depositors uncertain about the fate of their locked assets on the platform.
Prior to the bankruptcy filing, several U.S. state financial regulators had issued warnings to Celsius, with allegations ranging from ordering the platform to cease offering securities to accusing Mashinsky of making misleading statements.
Mashinsky resigned as CEO in September 2022, stating that his role had become a distraction amid users facing financial difficulties.
Reports indicated that Celsius had accumulated approximately $2.8 billion in debt.
In late 2022, the U.S. Justice Department obtained an indictment against Mashinsky, Celsius, and former chief revenue officer Roni Cohen-Pavon on multiple fraud-related charges.
These proceedings remained sealed until July 2023.
Additionally, regulatory bodies such as the Commodity Futures Trading Commission (CFTC), the Federal Trade Commission (FTC), and the Securities and Exchange Commission (SEC) were likely building their own cases against Celsius for regulatory violations within their jurisdictions.
In January 2023, the New York Attorney General filed a lawsuit against Mashinsky, accusing him of making false and misleading statements that resulted in significant losses for investors.
Subsequently, the CFTC and SEC filed civil cases against Mashinsky while reaching settlements with the Celsius platform itself.
The FTC imposed fines of $4.7 billion on Celsius for allegedly misusing user deposits.
As of now, Mashinsky has pleaded not guilty to all charges and is out on a $40 million bond with limited travel permissions.
Celsius debtors expressed satisfaction with the resolution of the cases with federal regulators as the platform continued its bankruptcy proceedings.
Mashinsky joins a growing list of individuals in the crypto space targeted by authorities for alleged fraud.
Other notable figures include former FTX CEO Sam Bankman-Fried, who awaits his first criminal trial in October, and Terra co-founder Do Kwon, sentenced to four months in prison in Montenegro and potentially facing extradition to the U.S. or South Korea for fraud charges.