CFTC Files Suit Against Celsius and Founder Alex Mashinsky

The Commodity Futures Trading Commission (CFTC) has joined the SEC in filing a civil complaint against Celsius Network and its founder and former CEO Alex Mashinsky. Criminal charges were filed by the US Department of Justice as well in a trifecta of legal action against the failed crypto firm.

The CFTC’s complaint charges the defendants with fraud and material misrepresentations regarding the operation of its digital asset platform. The complaint states that Celsius falsely touted high profits and security to induce customers to deposit their digital asset commodities on the platform, which is now in bankruptcy.

The complaint also alleges Celsius acted as an unregistered commodity pool operator (CPO) and Mashinsky operated as an unregistered associated person (AP) of a CPO.

The CFTC and Celsius agreed to resolve the complaint against the company by imposing a permanent injunction prohibiting future violations of the Commodity Exchange Act (CEA).

In ongoing litigation against Mashinsky, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.

CFTC Commissioner Kristin N. Johnson issued a statement on the enforcement action. She said that it is imperative that firms operating in financial services, including crypto, recognize certain lessons.

Johnson said:

“…Despite CEOs’ marketing of innovative firms and touting the adoption of cutting-edge technology—Celsius CEO Mashinsky promised customers that they could “make money in their sleep,” acquiring rewards by lending CEL native crypto tokens—the underlying activities of these businesses demonstrate similar risk management exposures to those we find in the traditional financial services sector and consequently, these activities should be subject to appropriate regulation.”

She added that the failure of Celsius was similar to traditional market failures, but the “guardrails built into our traditional regulatory architecture are absent.”

Celsius collapsed in 2022 following a massive panic in crypto markets. At one point, Celsius paid investors 18.63% interest on its yield program. Individuals rushed to take advantage of the high rates of returns until crypto markets cratered, spiked by the failure of TerraUSD/LUNA. Celsius had promoted its platform as a safer, better alternative to banks. A claim that now seems farcical.

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