The Commodity Futures Trading Commission (CFTC) has concluded that the bankrupt crypto lender and its former CEO Alex Mashinsky broke U.S. rules before the company’s collapse last year, according to a Bloomberg report citing unnamed sources.
Celsius was a popular crypto lending platform that allowed users to deposit cash and earn returns on their digital assets. The New Jersey-based company froze withdrawals in June 2022, citing “extreme market conditions,” and filed for bankruptcy a month later.
The CFTC enforcement unit’s attorneys have reportedly determined that Celsius, under the leadership of Mashinsky, misled investors and should have registered with the regulator, one of the sources said.
The matter is now in the hands of the CFTC who will review the case and make a decision on whether to file a court case. The report suggests that this decision could be made as early as this month.
The CFTC did not immediately reply to Decrypt’s request for comment. Celsius lawyers Kirkland & Ellis, as well as legal counsel for Mashinsky are yet to respond.
Mashinsky’s legal troubles
Mashinsky is already facing a lawsuit filed by New York attorney general Letitia James in January this year.
The lawsuit alleged Mashinsky made false and misleading statements about the safety of Celsius, misrepresenting and concealing the company’s financial condition, and failing to register as a salesperson for Celsius, as well as a securities and commodities dealer.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” New York Attorney General Letitia James said in the release. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
James also demanded to permanently bar Mashinsky from engaging in any business relating to the issuance, offer, or sale of securities or commodities in the State of New York. She requested to stop him from serving as a director or officer of any company doing business in the state.
Celsius’ bankruptcy proceedings revealed a balance sheet hole of approximately $1.2 billion.
Mashinsky resigned from his position as Celsius CEO in September 2022, saying that he was “very sorry about the difficult financial circumstances members of our community are facing,”
An October 2022 media report alleged the 57-year-old entrepreneur withdrew $10 million from a Celsius-linked account several weeks before the firm froze customer withdrawals.
Since last summer, the company has been attempting to come up with a restructuring plan.
Digital asset investment firm Novawulf emerged as the winning bidder for Celsius’ troubled assets in February this year but lost the race to Fahrenheit, a crypto consortium backed by mining company US Bitcoin Corp., Arrington Capital, and Proof Group, among others.