Why was Alex Mashinsky arrested? Former Celsius CEO fraud allegations explored

On Thursday, July 13, former Celsius CEO Alex Mashinsky was arrested on federal securities fraud charges. According to CNBC, Mashinsky allegedly schemed to defraud investors of billions of dollars.

The company, a now bankrutp crypto exchange, had attracted several interested investors. The suspected fraudster was accused of misrepresenting Celsius' profitability as well as the sustainability of the crypto exchange's high reward rates.

In response to the accusations, Alex Mashinsky pleaded not guilty to the fraud charges in a New York Federal Court. The charges against the disgraced CEO included scheming to defraud investors, securities, commodities and wire fraud, securities manipulation and fraud. He was accused of lying about the company's central business models, as well as the level of risk involved in its various ventures.

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All there is to know about the allegations against Alex Mashinsky

As per the Wall Street Journal, the Celsius network was founded in 2017. The company, which advertised itself as a crypto-currency lending business, reportedly facilitated lending and borrowing for its users. The company filed for bankruptcy in July, 2022. At the time, they offered customers the option to either recover their cash at a discount, or to keep their cryptocurrency for the future.

Despite the recognition the Celsius network recieved over time, prosecutors claimed that Alex Mashinsky and others in his company solicited investments based on a network of lies.

A federal prosecutor said in a charging document:

"Mashinsky misrepresented, among other things, the safety of Celsius's yield-generating activites, Celsius's profitability, the long-term sustainability of Celsius' high rewards rates, and the risks associated with depositing crypto assets with Celsius."

Christie M. Curtis, the FBI acting assistant director in charge, elaborated on the allegations against Alex Mashinsky

"As alleged in the indictment, Mashinsky (...) knowingly engaged in complex financial schemes, deliberately misrepresenting the company's business model and criminally manipulating the value of Celsius's proprietary crypto token CEL, while serving in leadership roles at Celsius."

As per CBS, Alex Mashinsky and another former CEO, Roni Cohen-Pavon, made millions off various schemes. The pair reportedly manipulated the price of Celsius' proprietary token. Under different names, they sold other tokens at artificially inflated prices, allowing the Celsius' price to look more appealing. While Mashinsky allegedly gained $42 million from the sales, Cohen-Pavon is said to have made $3.6 million.

As per CNBC, Alex Mashinsky was also accused of orchestrating a $20 billion fraud scheme against investors. The former CEO's legal team denied the allegations made against him. His lawyer, Jonathan Ohring, claimed that the charges were entirely baseless, and that Mashinsky operated a completely legitiamte crypto-currency lending business.

The charges against Mashinsky and Cohen-Pavon represent another blow to the world of crypto-currency. While publications like Forbes have described it as an effective way to diversify your portfolio, many netizens believe that it is a scam.