DOJ, SEC, CFTC and FTC Line Up to Charge Celsius Founder With Fraud and Much More

SEC Charges Celsius Network Limited and Founder Alex Mashinsky with Fraud and Unregistered Offer and Sale of Securities

The Securities and Exchange Commission today charged Celsius Network Limited (Celsius) and its founder and former CEO, Alex Mashinsky, for violating registration and anti-fraud provisions of the federal securities laws, including by failing to register the offers and sales of Celsius’s crypto lending product, the Earn Interest Program; making false and misleading statements to investors of the Earn Interest Program and Celsius’s own crypto asset security, CEL; and engaging in market manipulation as it relates to CEL.

Celsius Ex-CEO Alex Mashinsky Is Arrested

Federal prosecutors said Mr. Mashinsky, 57, misled customers into believing that Celsius was a safe place to park their money, when in reality it was fraught with risks. He was also sued by the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission.

Mr. Mashinsky was arrested at his home in New York, a person close to the investigation said. The charges against him include wire fraud, commodities fraud and manipulation of securities prices. Prosecutors also filed charges against the company’s chief revenue officer, Roni Cohen-Pavon, accusing him of price manipulation and wire fraud, among other offenses.by Financial Times

Alex Mashinsky’s Bail in Celsius Case Set at $40M, Travel Restricted

Bail for Alexander Mashinsky, founder and former chief executive of bankrupt crypto lender Celsius, has been set at $40 million by a U.S. District Judge after he was arrested Thursday on charges of fraud.

Mashinsky pleaded not guilty to seven counts, relating to misleading investors and manipulating the price of his CEL token after being arrested on Thursday, the court document said.

Mashinsky will be restricted from traveling and cannot open new bank or crypto accounts under the deal. His wife will sign the bond, while the other co-signee has not yet been identified, court documents revealed. The bond will also be secured by a financial claim on his New York City home and bank account.

Celsius Was Lying

We have talked a lot about Celsius around here, because it was perhaps the most ridiculous of the big crypto companies. Celsius was a crypto lending platform that offered customers high yields on their crypto deposits. In an interview with Bloomberg Businessweek, Mashinsky explained that Celsius’s rates were so much higher than bank deposit rates not because it was riskier than a bank, but because it passed along more of its earnings to customers. “Somebody is lying,” said Mashinsky: “Either the bank is lying or Celsius is lying.”

Last summer Celsius froze customer withdrawals and filed for bankruptcy. There are four long federal complaints against Celsius today, detailing its operations and the problems with them, and I will discuss them below. But all of this is just a footnote to that sales pitch. “Either the bank is lying or Celsius is lying” is everything you need to know about Celsius; a generative AI model could write all four of these complaints with no prompt but that sentence; everything that Celsius actually did is somehow contained in that sentence.

Judge’s Ruling on Ripple’s XRP Token Gives Crypto Industry a Victory

The S.E.C. sued Ripple in December 2020, accusing the firm of violating securities laws in one of the first major legal fights involving cryptocurrencies. In the 34-page ruling on Thursday, Judge Analisa Torres of the U.S. District Court for the Southern District of New York said that Ripple did not break the law when the cryptocurrency it created, XRP, was sold on public exchanges.

The ruling was not a complete victory for the industry. Judge Torres also found that Ripple had violated securities law when it sold XRP to institutional investors, like sophisticated hedge funds.

So, Ripple

The SEC brought an enforcement action claiming that XRP was a security, and therefore all of the defendants sold securities without registering them, in violation of Section 5 of the Securities Act. The court held that the sales to institutional investors were sales of securities, but not the remaining sales.

I’ll start with: The holding makes no sense, but to understand where it’s coming from, you need to understand the arguments, which are similar to those made in other crypto cases.

Ripple Labs Ruling Throws U.S. Crypto-Token Regulation into Disarray

Following Thursday’s bombshell split decision by judge Analisa Torres of the Southern District of New York (SDNY) in SEC v. Ripple Labs et al., the answer appears to be that XRP is both an unlawfully sold investment contract when sold to VCs or institutional buyers, but a perfectly lawful, “something else” when sold anonymously via cryptocurrency exchanges, or distributed to employees or by insiders.

The only thing this ruling guarantees for cryptocurrency issuers, then, is continued uncertainty in the cryptocurrency markets – uncertainty which Congress, and only Congress, can step in to correct.

Musk’s X Corp lawsuit offers a peek into Wachtell’s riches

X Corp’s complaint includes exhibits that reveal the “STRICTLY CONFIDENTIAL” billing rates of more than 60 Wachtell timekeepers in 2022 – an info dump that strikes me as perhaps superfluous but nonetheless fascinating.

The exhibits show that of counsel Leo Strine Jr – former chief justice of the Delaware Supreme Court – topped out Wachtell’s billing on the case at $2,000 an hour. Litigation partner Jeffrey Winter charged $1,950 an hour, litigation department co-chair William Savitt $1,850, corporate partner Benjamin Roth $1,650, litigation partner Sarah Eddy $1,600 – the list goes on.

As for associates, those who earned a J.D. in 2020 billed $725 an hour last year. Rates went up $100 per hour per class year after that.

SEC Charges Former Florida Brokerage Representative with Defrauding Senior and Disabled Customers

On July 12, 2023, the Securities and Exchange Commission filed partially settled charges against Joseph Michael “Mike” Todd, a resident of Panama City, Florida, and his entities Todd Financial Services, LLC (“TFS”) and TFS Insurance Services LLC (“TFS Insurance”), for defrauding at least 20 brokerage customers of at least $3 million.

According to the SEC’s complaint, Todd, while employed as a registered representative and investment adviser representative at a dually-registered broker-dealer and investment adviser, obtained investor funds through deceptive means by instructing his brokerage customers to write checks payable to TFS, TFS Insurance, or Todd by falsely assuring customers that he and his entities would invest the customers’ funds in various securities. As alleged, Todd instead misappropriated investors’ funds and kept the money for his own personal use, spending it on real estate, boating, hunting, casinos, and adult entertainment. The complaint further alleges that, in order to conceal and continue his scheme, Todd presented defrauded customers with forged account statements or portfolio holdings statements that contained falsified entries indicating the customers were invested in the products promised by Todd. Many of the victims of Todd’s scheme were seniors and/or disabled individuals, the complaint alleges. According to the complaint, Todd also made Ponzi-like payments to at least one customer by using other customers’ funds to make regular deposits from a TFS bank account into this customer’s account, which he falsely claimed were interest payments or regular distributions on an investment.