Lawyers representing Alex Mashinsky said he “did not intend to defraud or harm anyone” — and that the claims he made in weekly videos to Celsius clients were made in good faith.
What is the Celsius case?
Celsius Network was one of the biggest victims of the brutal crypto winter of 2022, with the troubled lender suddenly freezing withdrawals from 1.7 million customers.
The company had a huge black hole in its balance sheet — and suddenly slipped into bankruptcy, blaming “extreme market conditions.”
While company founder Alex Mashinsky regularly insisted his platform was “better than a bank,” with returns that seemed too good to be true, prosecutors allege it was different behind the scenes.
The SEC alleged that false and misleading statements were made to investors, and that there was widespread market manipulation of its native token, CEL.
While Celsius insisted it was a safe investment opportunity, regulators warned of “significant risks” being taken with investors’ money.
Now, more than two years after the company’s spectacular collapse, Mashinsky is on trial in New York — facing seven criminal charges.
The charges include wire fraud, securities fraud and commodity fraud. If convicted, the convicted businessman could face up to 115 years behind bars.
When the arrest occurred in July 2023, U.S. Attorney Damian Williams announced:
“If you exploit ordinary investors to line your own pockets, we will hold you accountable.”
The Justice Department has shown it has a strong track record of resolving chaotic cryptocurrency meltdowns and gathering the evidence needed to secure convictions.
FTX closed its doors in November 2022 — and less than a year later, Sam Bankman-Fried was convicted on all seven charges against him and subsequently sentenced to 25 years in prison.
His legal team has now filed an appeal, claiming he was treated unfairly by the judge throughout his trial.
Former Celsius CEO Ronny Cohen-Pavon pleaded guilty to four charges on September 13. Cohen-Pavon, an Israeli citizen, is free on $500,000 bail and may leave the United States to visit Israel. He has agreed to cooperate with prosecutors.
Mashinsky’s strategy
Lawyers representing Mashinsky said he “did not intend to defraud or harm anyone” — and that the claims he made in weekly videos to Celsius clients were made in good faith.
They are demanding testimony from six former company executives — including the company’s CFO. His law firm, Mokasey Young, wrote in a filing last week:
“In short, it appears that Mr. Mashinsky is accused of committing acts and events of which he had no knowledge, had no criminal intent, and in some cases even gave instructions to the contrary. Mr. Mashinsky should be given the opportunity to question the individuals who have been held responsible for his conduct.”
Lawyers have warned that the “stakes are high” given the potential sentence Mashinsky faces – and since that sentence could be life in prison, the former businessman should be given the opportunity to gather evidence in his defense.
The main challenge facing Mashinsky is that five of the witnesses cannot be called by a US court because they live abroad:
“Failure to obtain the testimony of these witnesses would result in a miscarriage of justice.”
Creditors paid
In recent months, work has been underway to compensate customers who were deprived of their savings when Celsius collapsed.
Creditors were receiving up to 85 cents on the dollar — far more money than other companies that had slipped into bankruptcy.
This is partly due to how cryptocurrency markets have soared in recent months, but despite this, a large portion of the recovered funds went to lawyers overseeing the Chapter 11 proceedings.
Receiving the payments was a bittersweet experience for many victims. While it ended months of uncertainty, many would have ended up missing out on the recent cryptocurrency rally.
Now out of bankruptcy, Celsius has been resurrected as Ionic Digital, a Bitcoin mining-focused company whose shareholders include the lender’s creditors.
Last month, a “state-of-the-art” facility in Texas was announced to house more than 15,000 miners — the first of four buildings to be built.
Figures released by Ionic also show that the company mined 1,331 BTC in the six months from February to July.
Despite this financial decision, many of those involved in the Celsius disaster will be following Alex Mashinsky’s trial closely — and some will be submitting victim impact statements to explain how they were affected by the bankruptcy.