Former Celsius CEO Alex Mashinsky was arrested Thursday on federal securities fraud charges, as the bankrupt crypto exchange agreed to $4.7 billion settlement with the Federal Trade Commission.
Celsius and Mashinsky were also sued by the Securities and Exchange Commission and the Commodity Futures Trading Commission in complaints accusing them of scheming to defraud investors out of billions.
Mashinsky pleaded not guilty in Manhattan federal court, where he is charged with securities, commodities, and wire fraud, as well as various securities manipulation and fraud charges. If convicted, Mashinsky and a co-defendant, Roni Cohen-Pavon, face decades in prison.
Celsius' settlement is one of the largest in the FTC's history, close to the record $5 billion fine levied against Meta in 2019, and highlights what the FTC described as repeated deceptions by Celsius and Mashinsky.
The settlement, announced by the FTC, will not be paid until the company is able to return what remains of customer assets in bankruptcy proceedings.
The office of U.S. Attorney Damian Williams said in a charging document that "Mashinsky misrepresented, among other things, the safety of Celsius's yield-generating activities, Celsius's profitability, the long-term sustainability of Celsius' high rewards rates, and the risks associated with depositing crypto assets with Celsius."
The concurrent SEC proceedings allege that Celsius and Mashinsky misled investors and fraudulently manipulated the price of Celsius' exchange token, CEL.
The SEC has also alleged that they "misrepresented" the company's "central business model and the risks to investors" by allegedly claiming Celsius did not engage in risky trading and paid most, but not all, of the company's revenue over to investors.
"None of these claims," the SEC alleged, were true. Celsius had allegedly experienced, for example, "hundreds of millions of dollars" worth of defaults on its institutional loans.
Both the charging documents from New York federal prosecutors and the SEC complaint also describe Celsius' exchange token as a security. The definition of a security and the SEC's oversight over crypto markets has been hotly contested by other crypto exchanges in recent months.
"Alex vehemently denies the allegations brought today," Mashinsky's counsel Jonathan Ohring told CNBC. "He looks forward to vigorously defending himself in court against these baseless charges."
Earlier this year, New York prosecutors accused Mashinsky of orchestrating a $20 billion fraud against investors. CNBC previously reported on pervasive, yearslong issues that plagued the crypto exchange well before it filed for bankruptcy in 2022.
— CNBC's Jim Forkin contributed to this report.
