Release Number 8749-23
CFTC Charges Alexander Mashinsky and Celsius Network, LLC with Fraud and Material Misrepresentations in Massive Commodity Pool Scheme Involving Digital Asset Commodities
Celsius Agrees to a Consent Order to Resolve the Lawsuit
July 13, 2023
Washington, D.C. — The Commodity Futures Trading Commission today announced it filed a complaint in the U.S. District Court for the Southern District of New York against Alexander Mashinsky and Celsius Network, LLC. The complaint charges the defendants with fraud and material misrepresentations in connection with the operation of its digital asset-based finance platform, which falsely touted high profits and security to induce customers to deposit their digital asset commodities on the platform.
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).
“As companies and individuals develop new products and services utilizing digital asset commodities, they must adhere to the long-established rules prohibiting fraud in the market and comply with the registration requirements of the Commodity Exchange Act,” said Director of Enforcement Ian McGinley. “Among the bedrock principles of the Commodity Exchange Act are the protection of customers and the integrity of the market. This case is the CFTC’s first against a digital asset lending platform, and it demonstrates the agency will not shy away from ensuring the law is enforced in the digital asset arena. Innovation does not equate to immunity from compliance with the law.”
In its continuing 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, as charged.
The complaint alleges that from 2018 through June 2022, Mashinsky and Celsius engaged in a scheme to defraud hundreds of thousands of customers by mispresenting the safety and profitability of its digital asset-based finance platform. Mashinsky and Celsius, via publicly available videos, blog posts, livestreams, and postings on social media and their website, touted Celsius as a “safe” alternative for customers’ digital asset commodities, similar to a traditional bank. Mashinsky and Celsius not only promised customers their deposited digital asset commodities would be safe with Celsius, but also promised customers high yield interest payments on the deposits. To generate income to pay its customers the promised interest rates, customers’ digital asset commodities were pooled and deployed by Celsius as loans to institutional and retail customers and for other revenue generating activities, including, but not limited to, the trading of futures contracts. For this trading, Celsius operated the Celsius Pool, but was not a registered CPO.
Additionally, Mashinsky did not register as an AP of a CPO, despite soliciting members of the general public to contribute to the Celsius Pool. Based on the false promises of the safety of Celsius’ operation and receipt of high interest rate payments, customers deposited approximately $20 billion with Celsius. However, instead of engaging in “safe” investments, Mashinsky and Celsius engaged in increasingly risky trading strategies when they were unable to make customers’ interest payments. Despite claims by Mashinsky in May 2022 that Celsius had billions of dollars in liquidity and could meet customer withdrawal requests, on June 12, 2022, Celsius froze customer withdrawals. On July 13, 2022, Celsius filed for bankruptcy, revealing that its liabilities exceeded its assets by more than one billion dollars.
The CFTC cautions that orders requiring repayment of funds to victims may not always result in the recovery of lost money because the wrongdoers may not have sufficient funds or assets.
Related Criminal and Civil Actions
In a parallel, separate action, on July 13, the U.S. Attorney for the Southern District of New York unsealed an indictment charging Mashinsky with fraud. Also, on July 13, the Securities and Exchange Commission charged Celsius and Mashinsky with fraud.
The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, and the Securities Exchange Commission.
The Division of Enforcement staff responsible for this matter are Dmitriy Vilenskiy, Chrystal Gonnella, Jason Gizzarelli, Traci Rodriguez, and Paul G. Hayeck. The Division of Enforcement’s Digital Asset Task Force also provided assistance.
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CFTC’s Commodity Pool Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories and Articles, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.
The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that entity. A company’s registration status can be found using NFA BASIC.
Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.