Celsius and former CEO Mashinsky broke US rules, CFTC concludes: Bloomberg

CFTC Investigators Conclude Celsius Network Violated US Rules, Potential Legal Action Imminent

According to sources familiar with the matter, investigators at the Commodity Futures Trading Commission (CFTC) have determined that Celsius Network, the bankrupt crypto lender, and its former CEO, Alex Mashinsky, violated US regulations prior to the firm's collapse. If a majority of the CFTC commissioners agree with this conclusion, the agency may file a case in federal court as early as this month. Attorneys from the CFTC's enforcement unit found that Celsius misled investors and should have registered with the regulator. They also concluded that former CEO Alex Mashinsky broke regulations.

The CFTC declined to comment on the matter, and representatives and attorneys for Celsius have not responded to requests for comment. In addition to the CFTC investigation, the Securities and Exchange Commission (SEC) and federal prosecutors in Manhattan have also been looking into Celsius, as mentioned in bankruptcy filings. The SEC and the US Attorney's Office for the Southern District of New York declined to comment on the status of these probes.

Celsius Network gained popularity during the pandemic by offering loans and providing higher interest rates on virtual token deposits compared to traditional finance. Mashinsky consistently positioned the offerings as safe as those available at banks. However, the collapse of the TerraUSD token and the downturn in the crypto market in 2022 led to risky bets by the firm backfiring. Despite vehemently denying significant losses, Celsius faced a wave of customer withdrawals, ultimately freezing withdrawals in June 2022 and subsequently filing for bankruptcy protection.

Mashinsky, who previously worked in telecommunications, co-founded Celsius in 2017. The firm raised funds through an initial coin offering and grew into a multi-billion dollar business by paying customers interest for lending out their crypto tokens. The spectacular blow-up of Celsius has already resulted in legal action, including allegations from New York Attorney General Letitia James accusing Mashinsky of making false statements about the platform's safety and misrepresenting the company's financial condition. Mashinsky has sought to dismiss the claims, arguing that they demonstrate a misunderstanding of Celsius's business.

If the CFTC proceeds with a federal enforcement action against Celsius and Mashinsky, it would be the latest case brought by US authorities in the crypto space this year. The CFTC previously sued Binance Holdings and its CEO Changpeng Zhao, while the SEC has sued Binance and Coinbase Global. Both Binance and Coinbase have maintained their innocence. The CFTC has brought numerous cases related to fraud and manipulation in the digital asset market, resulting in significant penalties and restitution.

Bitcoin and Ether, the two largest cryptocurrencies, are considered commodities by the CFTC, which claims jurisdiction over them in cases of suspected fraud or manipulation. The agency also asserts its authority over certain crypto stablecoins and derivatives of Bitcoin and Ether.

In May, Fahrenheit LLC, a group of bidders led by investment firm Arrington Capital, won an auction to acquire some of Celsius's assets.