Celsius Network Faces $4.7 Billion Settlement, But The Reorganization Not Affected

Key Points:

• Celsius Network reaches $4.7 billion settlement over fraud allegations.
• The company insists that the payment has no bearing on its current restructuring efforts.
• The settlement requires the return of customer assets; SEC accuses Mashinsky of misleading investors.

Celsius Network, a bankrupt cryptocurrency lender, has found itself at the center of a major legal battle. The company recently announced a $4.7 billion settlement with U.S. government regulators over allegations of fraud.

This settlement, one of the largest in the history of the Federal Trade Commission (FTC), is expected to resolve the claims against Celsius Network. However, the company maintains that the settlement will not have any impact on its ongoing reorganization efforts or the amount it aims to recover for its customers.

The situation took a dramatic turn when Alex Mashinsky, the former CEO of Celsius Network, was arrested on federal securities fraud charges. Alongside the arrest, the cryptocurrency exchange agreed to pay the hefty $4.7 billion settlement. The charges against Mashinsky, as filed by federal prosecutors, include securities fraud, commodities fraud, wire fraud, and various securities manipulation and fraud charges. If convicted, both Mashinsky and a co-defendant, Roni Cohen-Pavon, could face significant prison sentences.

The settlement, announced by the FTC, will not be paid until Celsius Network is able to return the remaining customer assets as part of its ongoing bankruptcy proceedings. This condition highlights the priority placed on compensating affected customers.

Simultaneously, the Securities and Exchange Commission (SEC) has initiated its own proceedings against Mashinsky and Celsius Network. The SEC’s charges align with those of the federal prosecutors, alleging that Mashinsky misled investors and engaged in fraudulent manipulation of the price of Celsius’ exchange token, CEL. The complaint also asserts that the company misrepresented its business model and the associated risks to investors.

Celsius Network, based in New Jersey, marketed various cryptocurrency products and services, including interest-bearing accounts, personal loans secured by cryptocurrency deposits, and cryptocurrency exchange. However, the FTC claims that the company and its co-founders, Alex Mashinsky, Shlomi Leon, and Hanoch Goldstein, misappropriated over $4 billion in consumer assets while marketing the platform as a safe place for deposits. It is worth noting that the co-founders have not agreed to the FTC settlement, and their case will proceed to federal court.

These recent developments come after earlier fraud charges were filed by New York prosecutors against Mashinsky, alleging his involvement in a $20 billion fraud scheme targeting investors. These incidents shed light on longstanding issues within Celsius Network, which had been plagued by problems well before its declaration of bankruptcy in 2022.

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