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(Headline image courtesy of Web Summit)
July 13, 2023 - In a series of major regulatory moves, the Securities and Exchange Commission (SEC) today announced charges against cryptocurrency lending platform Celsius Network Limited (Celsius) and its founder and ex-CEO, Alex Mashinsky. The charges accuse the company and its founder of breaching registration and anti-fraud regulations of federal securities laws.
According to the SEC's complaint, the company, since its inception in 2018, offered its crypto lending product, the Earn Interest Program, without filing for registration as required by federal securities laws. The program allowed investors to earn interest by lending their crypto assets to Celsius, an offer which, in the eyes of the SEC, constituted the sale of securities.
The charges also allege that Celsius and Mashinsky continuously misrepresented vital details about the company's operations, strategies, financial health, and risks involved to the investors. This alleged deception includes statements concerning the safety of customer assets on Celsius’s platform, and the company's business model.
Furthermore, the SEC complaint accuses Celsius and Mashinsky of manipulating the market of the company's own crypto asset security, CEL. Allegedly starting in 2020, they engaged in deceptive schemes to artificially increase the price of CEL through manipulative buybacks in excess of its publicly disclosed purchases. This manipulation was aimed at inducing others to buy CEL, thus benefiting Celsius and Mashinsky.
SEC Enforcement Division Director Gurbir S. Grewal stated, “Celsius lied to investors by presenting itself as a safe investment opportunity and a chance to gain financial freedom, but, behind the scenes, the company operated a failing business model and took significant risks with investors’ crypto assets.”
He added that thousands of retail investors have experienced significant financial hardship due to Celsius’s and Mashinsky’s illegal conduct. Now, the SEC seeks to hold both the company and its founder accountable for their actions.
If proven guilty, Celsius and Mashinsky could face injunctions against future securities law violations. Mashinsky might also face prohibition from participating, directly or indirectly, in the purchase, offer, or sale of any crypto asset securities. Further penalties could include barring Mashinsky from acting as an officer or director of a public company, and monetary relief in the form of civil penalties, disgorgement of profits, and prejudgment interest.
Celsius is cooperating with the SEC and has agreed to the requested relief, which includes a permanent injunction against future securities law violations. Simultaneously, both the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) announced charges against Celsius and Mashinsky.
The investigation is still ongoing, and the SEC has expressed gratitude for the assistance of the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the CFTC.
