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

The Securities and Exchange Commission (SEC) has brought charges against Celsius Network Limited (Celsius) and its founder and former CEO, Alex Mashinsky, for violating registration and anti-fraud provisions of federal securities laws. The charges include failure to register the offers and sales of Celsius’s crypto lending product, the Earn Interest Program, making false and misleading statements to investors regarding the Earn Interest Program and Celsius’s crypto asset security, CEL, and engaging in market manipulation related to CEL.According to the SEC’s complaint, from the early stages of Celsius in 2018 until the platform’s effective halt on June 12, 2022, Celsius offered the Earn Interest Program to investors. The program involved investors depositing their crypto assets with Celsius in exchange for interest payments. However, the SEC alleges that the Earn Interest Program constituted the offer and sale of securities, which required registration or an exemption from registration. Celsius failed to meet these requirements, leaving investors without the protection that registration would provide.The complaint further alleges that throughout Celsius’s operation, the company and Mashinsky consistently misrepresented crucial aspects of Celsius’s business to investors in the Earn Interest Program and CEL. These false and misleading statements included information about trading and business strategies, risks, the company’s business model, financial health and success, and the safety of customer assets on Celsius’s platform.In addition, the SEC’s complaint accuses Celsius and Mashinsky of market manipulation involving CEL. Starting in at least 2020, the defendants allegedly engaged in a fraudulent scheme to artificially increase and support the price of CEL through manipulative buybacks. Celsius and Mashinsky, who held a significant amount of CEL, structured the scheme to have a significant impact on the market and entice others to purchase CEL, benefiting Celsius and Mashinsky.The SEC’s complaint, filed in the Southern District of New York, charges Celsius and Mashinsky with violations of various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC seeks injunctions against future securities law violations and an injunction prohibiting Mashinsky from participating in the purchase, offer, or sale of any crypto asset securities or engaging in activities intended to induce the purchase or sale of such securities by others. The complaint also seeks monetary relief in the form of civil penalties, disgorgement of profits, and prejudgment interest. Celsius is cooperating with the SEC and has consented to the requested relief, including a permanent injunction against future securities law violations.Parallel actions have been taken by the U.S. Attorney’s Office for the Southern District of New York, which announced charges against Mashinsky, and the Commodity Futures Trading Commission (CFTC), which also charged Celsius and Mashinsky.The SEC’s investigation is ongoing and is being conducted by Randall D. Friedland and Christian J. Ascunce, with assistance from Sachin Verma, Peter Rosario, and Adam Gottlieb. The matter is supervised by Pei Y. Chung, Stacy L. Bogert, David Hirsch, and Jorge G. Tenreiro of the SEC’s Crypto Assets and Cyber Unit. The litigation is led by H.B. Roback, under the supervision of James Connor and Olivia Choe.The SEC acknowledges the assistance provided by the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the CFTC in this matter.