Alex Mashinsky, founder of Celsius Network, has been sentenced to 12 years imprisonment for engaging in fraudulent activities and misleading investors on his crypto platform. The court found that Mashinsky made false assurances regarding the funds of consumers and the company’s profitability. As a result of his actions, thousands of customers lost money and became disillusioned with the crypto market. After the FTX fiasco, many regulators, particularly in America, are clamping down hard on crypto scams so that honest traders can do business without being scammed by dishonest actors. Major disruptions, such as with the Celsius crisis, has highlighted the need for regulatory oversight and increased transparency, especially with centralised exchanges.
Mashinsky was arrested in 2023 for wire fraud. The Federal Trade Commission (FTC) settled with Celsius, totalling $4.7 billion, a record for the FTC. The settlement was contingent on Celsius returning funds to clients who had lost money during the crisis. The FTC accused Mashinsky of misleading customers about the profitability of the yield market while simultaneously withdrawing his holdings in secret.
The lawyers of Mashinsky wrote a letter to the presiding judge, claiming that a longer sentence would effectively be a death sentence for their client. They further argued that Mashinsky was being characterised as a sadistic trader who was intentionally preying on his customers. The lawyers felt that such a characterisation of their client was inaccurate and contributed to a larger sentence.
Celsius employees used $4 billion of customers’ funds to pay for high-risk assets, loans, and operational expenses. Celsius has its token named CEL. Mashinsky manipulated the local currency CEL by using customer funds to boost the price. In 2021, Celsius was at the peak of their success with $25 billion in assets and one million clients. However, as with most financial scams, the truth was revealed when the markets dropped. In 2022, cryptocurrencies dropped in price, leaving Celsius exposed to unforgiving market conditions. The so-called tide had dropped, exposing the cryptocurrencies that had been ‘swimming naked’. Celsius was one such cryptocurrency because it had been misusing customer funds. On June 12, 2022, Celsius froze $4.7 billion in customer accounts while a bank run was happening, and filed for bankruptcy one month later.
Mashinsky has been devastated by the crisis and has had to forfeit $48 million of his personal wealth and 9 real estate properties. Celsius, however, is unable to pay off the customers, who are estimated to have losses of $4.7 billion. Some estimates even suggest $7 billion in losses if the drop in CEL token is taken into account. The court case examined 200 personal loss accounts to stress the financial and psychological impact of the crisis. Many of the investors had placed a lot of trust in the platform and had lost large sums of personal savings. The emotional toll of financial matters, the mishandling of funds, is a life-shattering experience for many investors, and sadly, it is not focused on enough. The investors may be crypto traders, but still have hopes and aspirations for their tokens, and should be given a minimum standard of protection by the courts. The prosecutors demanded a maximum sentence. There was a push for 20 years imprisonment, but the court settled on a 12-year sentence instead.
