CFTC Charges Alexander Mashinsky and Celsius Network with Fraud and Material Misrepresentations

The U.S. Commodity Futures Trading Commission (CFTC) has announced the filing of a complaint in the U.S. District Court for the Southern District of New York against Alexander Mashinsky and Celsius Network, LLC. The complaint alleges that the defendants engaged in fraud and material misrepresentations in relation to the operation of their digital asset-based finance platform. The platform falsely claimed high profits and security to entice customers to deposit their digital asset commodities.

According to the complaint, Celsius also acted as an unregistered commodity pool operator (CPO), while Alexander Mashinsky operated as an unregistered associated person (AP) of a CPO. To resolve the complaint against Celsius, the CFTC and the company have agreed to a permanent injunction that prohibits future violations of the Commodity Exchange Act (CEA).

Ian McGinley, the Director of Enforcement at the CFTC, emphasized the importance of adhering to established rules and regulations in the digital asset market. He stated, “Among the bedrock principles of the Commodity Exchange Act are the protection of customers and the integrity of the market. This case is the CFTCs first against a digital asset lending platform, and it demonstrates the agency will not shy away from ensuring the law is enforced in the digital asset arena. Innovation does not equate to immunity from compliance with the law.”

In the ongoing litigation against Alexander Mashinsky, the CFTC is seeking various remedies, including restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, as well as a permanent injunction against further violations of the CEA and CFTC regulations.

The complaint alleges that between 2018 and June 2022, Mashinsky and Celsius engaged in a scheme to defraud hundreds of thousands of customers by misrepresenting the safety and profitability of their digital asset-based finance platform. Through public channels such as videos, blog posts, live streams, social media, and their website, Celsius presented itself as a “safe” alternative for customers' digital asset commodities, similar to a traditional bank. They promised high-yield interest payments on deposited assets, pooling customers' digital assets for loans and revenue-generating activities.

However, instead of engaging in safe investments, Mashinsky and Celsius pursued increasingly risky trading strategies when they were unable to meet customers' interest payments. Despite claims of having ample liquidity, Celsius froze customer withdrawals in June 2022 and filed for bankruptcy in July 2022, revealing liabilities that exceeded its assets by over one billion dollars.

The CFTC advises that while orders requiring the repayment of funds to victims may be issued, the recovery of lost money is not guaranteed, as wrongdoers may lack sufficient funds or assets.