The crypto sector has seen the conclusion of another high profile legal case – this time focused on the cofounder and former CEO of cryptocurrency lender Celsius Network.
In December 2024 Alex Mashinsky had pleaded guilty to securities fraud and commodities fraud. The guilty plea came after he had been arrested in July 2023 and was charged with seven counts of securities and commodities fraud, conspiracy and market manipulation charges.
Mashinsky had potentially faced up to 30 years in prison, but now the US DoJ has announced that he has been sentenced on Thursday to 12 years in prison.
Celsius chapter 11
In July 2022 New Jersey-based Celsius Network had filed for Chapter 11 bankruptcy protection, days after Vermont’s Department of Financial Regulation (DFR) had warned Celsius was “deeply insolvent and lacked the assets and liquidity to honour its obligations to account holders and other creditors.”
The move into bankruptcy protection came after Celsius Network in June 2022 had frozen all withdrawals, swaps, and transfers between customer accounts, citing “extreme” conditions.
Celsius, which once had a value of $12 billion, was one of the biggest crypto lending platforms in the US, and allowed users to lend out their tokens as collateral for other crypto projects in exchange for annual yields of up to 17 percent.
But investor interest in such high-risk areas dropped off dramatically after the collapse of the TerraUSD “stablecoin” in May 2022, which along with the Luna coin was linked to a similar high-yield scheme.
Then the collapse of FTX in October 2022 triggered another investor retreat.
FTX’s founder Sam Bankman-Fried was convicted of stealing roughly $8bn from that exchange’s customers in November 2023 and was sentenced in March to 25 years in prison. He is currently appealing that sentence.
In November 2023, the US bankruptcy court had approved a restructuring plan for Celsius Network, allowing the company to emerge from bankruptcy protection.
The firm has since pivoted to Bitcoin mining.
Prison sentence
Alexander Mashinsky was arrested in July 2023 on federal securities fraud charges.
Both Mashinsky and the former chief revenue officer of Celsius, Roni Cohen-Pavon, were further charged with conspiracy, securities fraud, market manipulation, and wire fraud for illicitly manipulating the price of CEL, Celsius’s proprietary crypto token, all while secretly selling their own CEL tokens at artificially inflated prices.
Cohen-Pavon pleaded guilty in September 2023 and agreed to co-operate with the US prosecutors’ investigation.
Mashinsky’s sentence was reportedly imposed by US District Judge John Koeltl in Manhattan, and is among the longest in a criminal case arising from the 2022 meltdown in cryptocurrency markets, Reuters noted.
Federal prosecutors had sought a prison term of at least 20 years for Mashinsky.
“Alexander Mashinsky targeted retail investors with promises that he would keep their “digital assets” safer than a bank, when in fact he used those assets to place risky bets and to line his own pockets,” said US Attorney Jay Clayton.
“In the end, Mashinsky made tens of millions of dollars while his customers lost billions. America’s investors deserve better,” said Clayton. “The case for tokenisation and the use of digital assets is strong but it is not a license to deceive. The rules against fraud still apply, and the SDNY will hold those who flout them accountable for their crimes.”