SEC files lawsuit against Celsius and ex-CEO Alex Mashinsky

The Securities and Exchange Commission has filed a lawsuit against bankrupt cryptocurrency lender Celsius and its former CEO Alex Mashinsky in federal court, according to court documents.

Concurrent with the SEC's filing in the Southern District of New York, Mashinsky was also criminally charged. the SEC's fellow regulators, the Commodity Futures Trading Commission and Federal Trade Commission, also filed civil actions against Celsisus and Mashinsky. 

The SEC accused Celsius and Mashinsky of raising billions through fraudulent and unregistered sales of “crypto asset securities,” repeatedly lying to investors about Celsius’s financial standing, and manipulating the price of CEL, the company’s native token.

Investigators at the Commodity Futures Trading Commission recently concluded that Celsius and Mashinsky broke U.S. laws before the firm collapsed.

Celsius, which was one of crypto's highest-profile implosions, filed for bankruptcy about a year ago as it owed billions of dollars to investors. At one point the crypto lender crypto lender held $30 billion in assets. A court-ordered bankruptcy examiner’s report found that Celsius made risky investment bets with customer funds.

Allegedly saying one thing, doing another

Echoing accusations from the examiner's report, the SEC accuses Celsius of secretly buying CEL to pump the value of the token, and repeatedly engaging in business practices that Mashinsky publicly said it did not do, including betting against bitcoin and making large unsecured loans to other companies. 

According to the SEC, Mashinsky tweeted in September 2020 that, “Celsius does not trade or take long or short positions with customer coins.” But the agency alleges the company shorted bitcoin in 2019, using Celsius customer funds. The bet lost the company $15 million, which the SEC says put them on shaky financial ground until a $20 million capital raise in August 2020, shortly before Mashinsky's statement that the company did not use customer assets to make directional trades. 

The SEC's civil suit documents multiple times that Mashinsky's public statements did not align with Celsius's business practices. That includes allegedly lending billions to other companies without any collateral despite repeatedly saying that Celsius did not do that. By 2022, the year of its failure, the company had over $1 billion in unbacked, outstanding loans out to other institutions, and according to internal Celsius documents, Mashinsky was repeatedly warned by employees that he made misleading statements about the company's business and financial state, including the uncollateralized loans. 

“[W]e do not offer any non-collateralized loans,” the SEC's filing quotes Mashinsky as telling CNBC in an April 2022 interview. According to the agency, the company had nearly $2 billion of uncollateralized loans owed to it by other institutions that year.