Celsius Founder Alex Mashinsky Pleads Guilty To Multi-Billion Dollar Fraud Scheme

Yet another crypto giant has fallen unceremoniously – this time it’s Alex Mashinsky, founder and CEO of Celsius who has “pled guilty to one count of commodities fraud and one count of securities fraud, which combined carry a maximum sentence of 30 years in prison.”

According to a DOJ Southern District of New York press release out Monday, Mashinsky misled Celsius customers about the company’s profitability and the security of their investments, while secretly manipulating the price of the company’s proprietary token, CEL, for personal gain.

As part of his guilty plea, Mashinsky agreed to forfeit over $48 million in proceeds from the schemes.

Celsius, once marketed as a safe alternative to banks with catchy slogans like “Unbank Yourself,” promised high returns on crypto deposits through programs like “Earn” and “Custody.”

However, Mashinsky and his team engaged in deceptive practices, including misrepresenting the company’s financial health and using customer funds to inflate CEL’s price. These actions created the illusion of profitability and stability while leaving ordinary investors vulnerable to significant losses.

By 2021, Celsius claimed to manage $25 billion in assets, primarily from retail investors, before filing for bankruptcy in 2022.

Central to the fraud was Mashinsky’s orchestration of a scheme to artificially inflate CEL’s price, including using customer deposits to buy CEL tokens in the open market, the release said. This price manipulation enabled Mashinsky to sell his personal holdings of CEL for a substantial profit, totaling approximately $48 million, while misrepresenting these activities to customers.

As the company faced financial collapse, Mashinsky continued to falsely reassure investors of Celsius’s liquidity, even as he withdrew millions of his own assets from the platform, the DOJ said. 

And among other things, the DOJ says that Mashinsky “misrepresented, among other things, the safety of Celsius’s yield-generating activities“. 

The fallout from Celsius’s collapse was devastating for its customers, with over $4.7 billion in crypto assets locked up when the company halted withdrawals in June 2022.

Celsius subsequently filed for bankruptcy, leaving many retail investors unable to access their funds. 

U.S. Attorney Damian Williams said: “Alexander Mashinsky orchestrated one of the biggest frauds in the crypto industry.  He lured ordinary, retail crypto investors into investing billions of dollars in Celsius with false promises that their investments were low-risk.”

“Using catchy slogans like ‘Unbank Yourself,’ Mashinsky promised that Celsius would keep customers’ crypto as safe as money in a bank, but that, unlike a bank, Celsius returned most of the profits from its business back to users,” Williams said. 

He continued: ”In reality, Celsius was never profitable.  To disguise the flaws in his business model, Mashinsky put investors’ money into riskier and riskier bets, and secretly used customer money to prop up the price of CEL token.  Mashinsky made tens of millions of dollars selling his own CEL at artificially high prices, while his customers were left holding the bag when the company went bankrupt.  Today’s convictions reflect this Office’s commitment to holding fraudsters like Mashinsky accountable for their crimes.”

Back in 2021, in a now-famous debate with Peter Schiff, Mashinsky was called out to his face about his firm’s inability to generate yield on bitcoin out of thin air. 

Documenting the exchange, Zero Hedge contributor Quoth the Raven wrote in a November 2021 criticism of Mashinsky’s interview:

The absolute worst and most irresponsible of all of the arguments from Mashinsky came when he suggested to viewers of the debate - many of whom likely lack financial sophistication - that both bitcoin and gold pay a yield.

Of course, what he meant was that they pay a yield on his Celsius platform, but he failed to qualify his statements to make that clear. Neither asset pays a yield in general and Mashinsky knows that.

QTR also documented on Zero Hedge when Celsius first paused withdrawls back in June 2022. 

Mashinsky had previously blamed short sellers for the plunge in Celsius, which should have been the tell.

“The CEO of crypto lending and staking platform Celsius Alex Mashinsky believes ‘the Sharks of Wall Street’ can smell blood in the water and are causing instability at several crypto projects. Mashinsky attributes recent Celsius (CEL) price falls, the brief Tether (USDT) depegging and collapse of Terra (LUNA) — at least in part — to short sellers on Wall Street,” Cointelegraph wrote in 2022.

“This is not a coincidence. This is somebody who decided, ‘You know what? I’m going to take down all of Celsius,’” he said during the event.

Turns out that somebody was the SDNY…