Celsius former CEO Alex Mashinsky arrested

Important new updates on the evolution of the Celsius saga: let’s see why a few days ago the former CEO was arrested. 

The crypto lending platform went bankrupt in July last year causing several billion dollars to disappear from investors’ pockets.

Exactly one year later, here come the first responses from US authorities with former CEO Alex Mashinsky being arrested Thursday and cited on 7 counts.

What will happen now with the remaining assets in Celsius? Will creditors be able to get their crypto assets back? With what timeline?

Let’s look at all the details together in this article.

All the details about the bankruptcy of Celsius and the arrest of its former CEO

The platform Celsius, which offered crypto deposit and lending services, went bankrupt in July 2022 by voluntarily signing the so-called Chapter 11, which is a corporate reorganization process to be applied in case of insolvency in companies in the US.

All investors who had deposited cryptocurrencies on the platform saw all withdrawals stopped shortly before the company’s bankruptcy filing, due to the “bank run” that was underway after the 3AC and Voyager Digital crashes.

As usual, when a US company declares bankruptcy by choosing the Chapter 11 route, all internal assets are freed up and given to an entity that will have to decide how and when to liquidate debtors.

After a year of complete silence, here come new details about the case, with the US Department of Justice (DOJ) taking civil action against Celsius after the latter chose to cooperate and confirm its responsibility in the fraudulent scheme.

The Commodity Futures Trading Commission (CFTC) separately sued Celsius accusing them of devising a scheme to defraud its customers by presenting false financial statements and misleading information about the financial platform’s safety and profitability plans.

The papers state that the company allegedly violated federal commodity regulations by not being registered as a “Commodity pool Operator.”

The Federal Trading Commission (FTC) also joined the whistleblower bandwagon, with the federal agency reaching an agreement with the bankrupt company that:

“will permanently prohibit it from handling consumer assets” and prevent it from “offering, marketing, or promoting any product or service that can be used to deposit, trade, invest, or withdraw any assets.”

The non-prosecution agreement comes after the same commission charged Celsius with violating the Federal Trade Commission Act “in connection with the marketing and sale of cryptocurrency lending and custodial services.”

Of course, in the list of authorities taking on the legal cases, one could not miss the Securities and Exchange Commission (SEC), which cited the platform’s CEL token and EARN products as financial securities that Celsius was not authorized to sell to investors.

On the bankrupt company’s official Twitter profile, a post was published explaining what has been happening in the last few hours with the various US authorities.

Former CEO Alex Mashinsky arrested: here’s why

While Celsius has been sued civilly by federal agencies, for Alex Mashinsky, former CEO of the crypto lending platform, things are looking decidedly worse.

The US Department of Justice has criminally charged the individual with orchestrating a fraudulent scheme, lasting several years, to mislead its customers.

Mashinsky was cited for 7 different counts among which we can count: securities fraud, commodities fraud, wire fraud and conspiracy to manipulate the market price of the CEL token.

These are the words that were used to point the finger at Mashinsky:

“Mashinsky portrayed Celsius as a modern bank where customers could safely deposit cryptocurrencies and earn interest. However, the truth is that Mashinsky ran Celsius as a risky investment fund, taking customers’ money under false and misleading pretenses.”

The former CEO is not the only one being scapegoated: former Chief Revenue Officer, Roni Cohen-Pavon has also been sued by the DOJ for committing federal crimes.

Both were arrested Thursday in New York and will have to legally defend themselves in court to prove their innocence, although the outcome now seems a foregone conclusion.

In this regard, their lawyers confidentially told Coindesk that they “look forward to vigorously defending themselves against these unfounded charges.”

When dealing with crypto bankruptcies of this magnitude, with hundreds of thousands of defrauded users losing their funds, US authorities always manage to identify a culprit on whom to place all responsibility, somewhat like what happened with Sam Bankman Fried and FTX.

Given the attention towards Mashinsky after the latest updates, many on-chain analytics companies have moved to investigate whether the former CEO of Celsius would have moved large funds in cryptocurrencies before his arrest, as is often the case in these circumstances.

In fact, “Lookonchain” reportedly found only one transfer of $48,000 to Coinbase, after Mashinksy himself sold 90,000 CEL in February 2021.

Currently the 9 wallets in the hands of the accused person, have a counter value of $5,000.

What will happen with the remaining assets after the bankruptcy? Will investors get their money back?

When a US company declares bankruptcy by applying Chapter 11 for internal reconstruction and reorganization, as happened with Celsius, those who lose out are mainly investors who will have to wait a little longer before seeing their crypto assets again.

The debtors, who still had an active balance sheet within the platform at the time it was declared bankrupt, will surely get back at least a portion of what they are owed, in proportion to how many assets remained in Celsius.

From here on out, it is up to the skill (and luck) of the liquidator, who will have to diligently manage the remaining crypto assets to ensure that each individual is given back as much as possible.

To draw a parallel, in the Mt. Gox exchange hack incident, the Trustee in charge of liquidating the affected individuals was lucky enough to be at the height of Bitcoin‘s appreciation in the markets.

Having managed the exchange’s inventories in BTC, the liquidators were able to recover enough to be able to repay their debts in full based on the countervalue held before the 2014 incident.

Even in the FTX case, the appointee, John Ray III, was able to recover many illiquid assets held by the exchange at the time of the November 2022 crash, and these very days he has opened the floodgates to allow debtors to execute the claim based on what each is entitled to.

In the case of Celsius, we will have to wait for details on the total value of assets still in the hands of the crypto lending platform and detailed information on the total amount of debtors to be able to draw conclusions

At the moment, the situation is still complex, and it could take months before any injured party can collect the amount that was fraudulently taken from them.

What we do know is that a few days ago, all altcoins on the balance sheet at Celsius, among which LINK, MATIC, AAVE, BNB, UNI and 1INCH tokens emerge, were swapped for BTC and ETH in a total countervalue of $64 million.

Seeing the bullish trend in the altcoin market after Ripple won its criminal battle with the SEC yesterday, we can only add the following words about the timing of making the switch:

Chapeau Celsius

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