Trial of Celsius founder Alex Mashinsky begins

Attorneys representing Alex Mashinsky argued that he “did not intend to defraud or harm anyone” and that the claims he made in weekly videos aimed at Celsius customers were made in good faith.

What is the Celsius case about?

One of the biggest casualties of the brutal crypto winter of 2022 was Celsius Network, with the struggling lender suddenly freezing withdrawals for 1.7 million customers.

The company had a huge black hole in its balance sheet and was suddenly forced into bankruptcy, citing “extreme market conditions.”

While founder Alex Mashinsky often claims his platform is “better than a bank” and that its returns seem too good to be true, prosecutors allege that behind the scenes the situation is different.

The Securities and Exchange Commission alleged that false and misleading statements were made to investors and that there was widespread manipulation in the markets of its native token, CEL.

While Celsius said it was a safe investment opportunity, regulators warned that investors were taking “significant risks” with their funds.

Now, more than two years after the doomed firm’s spectacular collapse, Mashinsky is on trial in New York, facing seven charges.

These include wire fraud, securities fraud and commodities fraud. If convicted, the fallen entrepreneur could face up to 115 years in prison.

When the arrest occurred in July 2023, U.S. Attorney Damian Williams said:

“If you defraud ordinary investors to line your own pockets, we will hold you accountable.”

The Justice Department has demonstrated a strong track record of solving complex crypto meltdowns and gathering the evidence needed to secure convictions.

FTX went bankrupt in November 2022, and less than a year later, Sam Bankman-Fried was found guilty of all seven charges against him and was later sentenced to 25 years in prison.

His legal team has now appealed and argues he was treated unfairly by the judge throughout the trial.

Alex Mashinsky at Web Summit 2021 | Source: Piaras Ó Mídheach/Sportsfile via Web Summit

Former Celsius executive Roni Cohen-Pavon pleaded guilty to four charges on Sept. 13. Cohen-Pavon, an Israeli citizen, was released on $500,000 bail and can leave the U.S. to visit Israel. She agreed to cooperate with prosecutors.

Mashinsky’s strategy

Attorneys representing Mashinsky argued that he “did not intend to defraud or harm anyone” and that the claims he made in weekly videos aimed at Celsius customers were made in good faith.

They are seeking testimony from six former executives within the company — including its chief financial officer — the law firm Mukasey Young wrote in a filing last week:

“In short, Mr. Mashinsky appears to be accused of actions and events that he had no knowledge of, no criminal intent, and at times even said the opposite. Mr. Mashinsky must be given the opportunity to question those whose conduct is being laid at his feet.”

Lawyers warned that the “risk is high” given the possible sentence Mashinsky faces, and said the former businessman should have the opportunity to gather evidence for his defence, given that it could potentially be a life sentence.

The key challenge for Mashinsky is that five witnesses cannot be subpoenaed by a US court because they live abroad:

“Failure to take statements from these witnesses will result in a miscarriage of justice.”

Creditors paid back

Efforts have been initiated in recent months to compensate customers who were deprived of their savings when Celsius went bankrupt.

Creditors are receiving up to 85 cents on the dollar, far more than what other firms that went bankrupt would receive.

While this is partly due to how cryptocurrency markets have recovered in recent months, the bulk of the recovered funds still went to attorneys overseeing Chapter 11 cases.

Getting paid was a bittersweet experience for many victims, ending months of uncertainty but many would have missed out on the cryptocurrency’s recent surge.

Now emerging from bankruptcy, Celsius has been reborn as Ionic Digital, a company focused on Bitcoin mining. The lender’s creditors are among its shareholders.

Last month, it was announced that a “state-of-the-art” facility in Texas that will house more than 15,000 miners was operational – the first of four buildings to be constructed.

According to figures from Ionic, the company also mined 1,331 BTC in the six months from February to July.

Despite this financial settlement, many of those involved in the Celsius disaster will be watching Alex Mashinsky’s case closely, with some filing victim impact statements to explain how the bankruptcy has affected them.