CFTC Finds Celsius Network and Its Ex-CEO Guilty of Breaking Rules

Commodity Futures Trading Commission (CFTC) investigators have ruled that crypto lender Celsius Network and its former CEO Alex Mashinsky violated US rules before the company collapsed. 

The findings suggest that Celsius misled investors and failed to register with the CFTC, Bloomberg reported Wednesday, citing people familiar with the matter. 

If the majority of the CFTC’s commissioners agree with these conclusions, the agency could file a case in federal court within the month, the report said. 

The collapse of Celsius Network has already resulted in legal action, with New York Attorney General Letitia James alleging that Mashinsky made false statements about the platform’s safety and misrepresented the company’s financial condition. 

In a lawsuit filed in January, James accused Mashinsky of defrauding hundreds of thousands of investors, including over 26,000 New Yorkers, out of billions of dollars. 

She accused him of using “false and misleading representations” to entice customers to deposit billions of dollars. 

Mashinsky and his lawyers have sought to dismiss the charges, arguing that the lawsuit demonstrates a lack of understanding of Celsius’s business.

Mashinsky, who co-founded Celsius in 2017, raised funds through an initial coin offering. 

The company experienced a significant surge in popularity during the pandemic, introducing loan offerings and attractive interest rates for virtual token deposits. 

Mashinsky often positioned these offerings as safer alternatives to those offered by traditional banks. However, the collapse of Terra’s algorithmic stablecoin UST and a downturn in the crypto market led to disastrous consequences for the company. 

Despite vehemently denying substantial losses, Celsius faced a wave of customer withdrawals, eventually freezing withdrawals in June 2022, and filing for bankruptcy protection a month later.

It is worth noting that the Securities and Exchange Commission (SEC) and federal prosecutors in Manhattan are also conducting their own investigations into Celsius, according to bankruptcy filings. 

US Regulators Increase Scrutiny of Crypto Firms

The CFTC’s action against Celsius comes as the agency has become increasingly involved in the crypto industry as of late. 

In March, the regulatory agency announced that it is suing Binance and founder Changpeng “CZ” Zhao on allegations that the crypto exchange knowingly offered unregistered crypto derivative products in the US in the transgression of the law.

CFTC Chairman Rostin Behnam recently informed lawmakers that the regulator has brought over 85 cases related to fraud and manipulation in the digital asset market, resulting in over $4 billion in penalties and restitution, the Bloomberg report said. 

The CFTC asserts its jurisdiction over Bitcoin (BTC) and Ether (ETH), considering them commodities and claiming authority in cases of suspected fraud or manipulation. 

Separately, the SEC has also filed lawsuits against Binance and Coinbase, the largest US crypto exchange. Both companies maintain their innocence.

Moreover, the commission has taken enforcement action against crypto exchanges Kraken and Bittrex, as well as crypto lending platform Nexo so far this year.