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A notable development is that the insolvent cryptocurrency lender Celsius Network has been fined a whopping $4.7 billion by the US Federal Trade Commission (FTC). The ruling will, however, be temporarily set aside so that Celsius may use bankruptcy processes to deliver its remaining assets to customers.
A cryptocurrency exchange as well as interest-bearing accounts, personal loans backed by cryptocurrency deposits, and other services were all advertised by New Jersey-based Celsius Network. The FTC said that co-founders Alex Mashinsky, Shlomi Leon, and Hanoch Goldstein misappropriated more than $4 billion in consumer assets while advertising the site as a “safe place” for users to deposit their cryptocurrencies. The FTC and the co-founders have not reached an agreement, thus the case against them will go to federal court.
The FTC also charged Celsius Network with extending unsecured loans totaling $1.2 billion, making false claims that it had user insurance worth $75 million, and not having adequate systems in place to manage its assets and obligations until late 2021. The FTC claims that Celsius Network officials intentionally deceived clients about the company’s financial soundness, especially during the bad market for cryptocurrencies in 2022. The FTC emphasized the co-founders’ dishonest conduct:
“While lying to their customers to keep them from withdrawing their cryptocurrency deposits, Leon, Goldstein, and Mashinsky protected themselves by withdrawing significant sums of cryptocurrency from Celsius two months before the company filed for bankruptcy. Consumers subsequently lost access to their life savings, college funds, and money saved for retirement.”
The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have both sued Celsius Network concurrently with the FTC’s activities. Additionally, the U.S. Department of Justice has charged and detained Alex Mashinsky, one of the co-founders, on seven fraud-related offenses. The fact that Celsius Network had already declared bankruptcy in July of last year is significant.