‘A sinking ship’: Celsius CEO charged with defrauding investors as crypto lender came crashing down

Behind the scenes, Celsius staffers were calling the beleaguered crypto business “a sinking ship” whose business model “is fundamentally broken,” court documents revealed.

“There is no hope . . . there is no plan,” one employee wrote. “We don’t have any profitable services,” an executive wrote in an internal message just three weeks before the company was forced to halt all withdrawals in June 2022. The company filed for bankruptcy a month later

On Thursday, Mashinsky, 57, was arrested and hit with federal criminal charges of conspiracy, securities fraud, market manipulation, and wire fraud, plus civil charges from the Securities and Exchange Commission and the Commodity Futures Exchange Commission. 

Celsius’ former chief revenue officer, Roni Cohen-Pavon, was also charged in the criminal case.

“If you rip off ordinary investors to line your own pockets, we will hold you accountable,” said Damian Williams, the U.S. attorney for the southern district of New York. “Whether it’s old-school fraud or some new-school crypto scheme, it doesn’t matter one bit. It’s all fraud.”

Celsius, which is now under new management, has reached a non-prosecution agreement in the criminal case and has agreed to fully cooperate. It also reached a $4.7 billion settlement with the Federal Trade Commission for lying to investors and agreed to never engage in the sale of securities again. 

Mashinsky and other Celsius executives were not party to the agreement and the FTC case against them continues. The FTC agreed to put the settlement on hold until Celsius’ bankruptcy proceeding is resolved.

Mashinsky’s attorney, Jonathan Ohring, said his client “vehemently denies the allegations brought today.”

“He looks forward to vigorously defending himself in court against these baseless charges,” Ohring said.

Cohen-Pavon, who is an Israeli citizen and is believed to be abroad, also couldn’t immediately be reached for comment and it was unclear if he had an attorney. 

An alleged litany of lies

The charges against Mashinsky allege that Celsius was a scam from the very beginning, when it began pitching its investor program in 2018, claiming it offered “financial freedom” and “economic opportunity.” 

Investigators say Celsius’ pitch revolved around two offerings: the sale of its own coin, CEL, which it promised investors generated high “earning rates,” and its Earn Interest Program which offered returns as high as 17% if investors allowed Celsius to use their deposits to make loans.

But investigators say it was all a mirage — the price of the platform’s token, CEL, was heavily manipulated by Mashinsky through secret and well-timed purchases. Such sales earned Mashinsky an extra $40 million in profit based off the manipulated prices, investigators said.

Even though Mashinsky claimed the company had enough money to cover the interest payments it had promised, it consistently came up short. 

“Celsius has been consistently losing money and is facing an erosion in the capital position as well as liquidity constraints. The current business model is not financially sustainable,” an internal report circulated among Celsius executives concluded in early 2022, according to court filings.

In 2021, Celsius lost more than $800 million in 2021 and in the first quarter of 2022, before it collapsed, it lost $165 million more. When Celsius declared bankruptcy, it said it was $1.2 billion the hole.

Investigators allege that Mashinsky even lied to investors about how many of them there were, consistently claiming to have more than one million customers, when the company never had more than 500,000 accounts, many of which were dormant.

Court documents also said Mashinksy had claimed to have raised $50 million when the company made its initial coin offering for CEL, but had only raised 65% of that, with the rest made up of coins he had quietly purchased himself, in an effort to bolster the coin’s price.