A bankrupt cryptocurrency platform has been permanently prohibited from managing client assets and given a suspended $4.7 billion judgement in a settlement with the Federal Trade Commission (FTC). The FTC's case will proceed in federal court against three former company executives, who have not agreed to a settlement.
The FTC announced the settlement with New Jersey-based Celsius Network in a July 13 news release. Former executives ex-CEO and co-founder Alexander Mashinsky and co-founders Shlomi Daniel Leon and Hanoch “Nuke” Goldstein are accused of "tricking consumers into transferring cryptocurrency onto the platform by falsely promising that deposits would be safe and always available," the release states.
The FTC complaint states that Celsius, which filed for bankruptcy in July 2022, promoted various cryptocurrency products and services, "including interest-bearing accounts, personal loans secured by their cryptocurrency deposits, and a cryptocurrency exchange." Mashinsky, Leon and Goldstein promoted the platform in videos and other online forums as a secure depository for consumers' cryptocurrency, claiming Celsius was even safer than banks, because “we have less risk, we have much less risk,” according to the release.
Users were deceived by the company which falsely promised that deposits could be withdrawn at any time; falsely claimed deposits were protected by a $750 million insurance policy; and falsely stated it maintained adequate reserves to meet obligations, the release states. Celsius also deceived customers of its Earn program could earn reward of 18% annual percentage yield (APY) on deposits, and also falsely stated it did not make unsecured loans, according to the release.
"Far from securing customers’ cryptocurrency deposits, Celsius took title to and misappropriated these deposits totaling more than $4 billion," the release states. "The company used consumer deposits to fund its operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments, which even the company acknowledged often lost money."
Celsius's executives hid this information from the public, falsely stating customer deposits were safe and continuing to seek new customers up to days before it filed for bankruptcy and froze customer accounts, the release reports.
"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," the release states. "Consumers subsequently lost access to their life savings, college funds, and money saved for retirement."
In addition to prohibiting Celsius and affiliate businesses from managing customer assets, the settlement levied a $4.7 billion judgment against Celsius, which is suspended to allow the company to disperse its assets to its customers as part of its bankruptcy proceedings, according to the release.
“Celsius touted a new business model but engaged in an old-fashioned swindle," Samuel Levine, director of the Bureau of Consumer Protection, said in the release. "Today’s action banning Celsius from handling people’s money and holding its executives accountable should make clear that emerging technologies are not above the law.”
The FTC is tasked with upholding a range of consumer protection and antitrust laws which affect almost all commercial sectors, with some exceptions. The agency focuses its enforcement activities on business behaviors that are harmful to consumers, according to its website.
