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Alex Machinsky, CEO of Celsius on stage in Lisbon for the 2021 Web Summit
Piaras Ó Midheach | math file | Getty Images
Alex Machinsky, former Celsius CEO, was arrested Thursday on federal securities fraud charges, a source told CNBC as the bankrupt cryptocurrency exchange agreed to pay a $4.7 billion settlement with government regulators.
The exchange has also been charged by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) with planning to defraud investors out of billions. The $4.7 billion settlement is one of the largest in FTC history, close to the record $5 billion that Meta was charged in 2019, and highlights what the FTC called repeated deception by Celsius and Mashinsky.
Federal prosecutors also charged Mashinsky with securities, commodities, and wire fraud, in addition to numerous counts of securities fraud and fraud. If convicted, Mashinsky and his co-accused, Ronnie Cohen Pavon, face decades in prison.
Mashinsky pleaded not guilty to fraud charges in New York federal court.
“Mashinsky misrepresented, among other things, the soundness of Celsius’s return-generating activities, the profitability of Celsius, the long-term sustainability of Celsius’s high reward rates, and the risks associated with depositing crypto assets in Celsius,” federal prosecutors said in the charging case. document.
The settlement, announced by the Federal Trade Commission, will not be paid until the company can return the remainder of the client’s assets in bankruptcy proceedings.
simultaneous SEC procedures They are against Mashinsky and Celsius and, like the federal charges, allege that Mashinsky misled investors and fraudulently manipulated the price of the CELIUS coin, CEL.
The SEC alleged that Mashinsky and his company “misrepresented” the company’s central business model and the risks to investors by claiming that Celsius did not engage in risky trading and pay most, but not all, of the company’s proceeds to investors.
The SEC alleged that “none of these allegations were true.” Celsius, for example, allegedly witnessed defaults on corporate loans worth “hundreds of millions of dollars.”
Both the charge documents from New York federal prosecutors and the SEC complaint also describe the Celsius exchange token as collateral. The definition of security and the SEC’s oversight of cryptocurrency markets has been hotly contested by other crypto exchanges in recent months.
Mashinsky’s attorney, Jonathan Oring, told CNBC that “Alex vigorously denies the allegations made today.” “He looks forward to vigorously defending himself in court against these baseless accusations,” he added.
Earlier this year, New York prosecutors charged Mashinsky with orchestrating a $20 billion fraud against investors. CNBC previously reported on years-long, spreading issues that plagued the cryptocurrency exchange long before it filed for bankruptcy in 2022.
— CNBC’s Jim Forkin contributed to this report.
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