FTC Drops The Hammer On Celsius Network With Historic $4.7 Billion Fine

The US Federal Trade Commission (FTC) has reached a settlement with cryptocurrency platform Celsius Network, which has been charged with duping consumers into transferring cryptocurrency into their platform and then “squandering” billions in user deposits. 

The settlement will permanently ban Celsius from handling consumers’ assets and charge three former executives with “tricking” consumers into transferring their cryptocurrency onto the platform by “falsely promising” that deposits would be safe and always available.

Celsius Network Banned From Offering Services

According to the FTC’s announcement, the settlement with Celsius and its affiliates will permanently ban the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest or withdraw any assets. 

The companies also agreed to a judgment of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings.

However, the former executives, ex-CEO and co-founder Alexander Mashinsky along with Celsius’s other co-founders Shlomi Daniel Leon and Hanoch “Nuke” Goldstein, have not agreed to a settlement, and the FTC’s case against them will proceed in federal court.

Celsius, a New Jersey-based company that filed for bankruptcy in July 2022, marketed a variety of cryptocurrency products and services to consumers, including interest-bearing accounts, personal loans secured by their cryptocurrency deposits, and a cryptocurrency exchange. 

However, according to a complaint filed by the FTC in federal court, Mashinsky, Leon, and Goldstein marketed the platform as a safe place for consumers to deposit their cryptocurrency, claiming that its platform was safer than banks because “we have less risk, we have much less risk.”

What’s more, the FTC alleges that the company and its top executives “deceived” users by falsely promising them that they could withdraw their deposits at any time, that the company maintained a $750 million insurance policy for deposits, that it had sufficient reserves to meet customer obligations, and that those in its Earn program could earn rewards on deposits of cryptocurrency assets as high as 18 percent annual percentage yield (APY). 

Celsius also allegedly made unsecured loans, totaling $1.2 billion as of April 2022, despite claiming that it did not make any unsecured loans.

Charges For Mishandling Customer Deposits

The FTC further alleges that Celsius took title to and misappropriated consumer deposits totaling more than $4 billion, using customer deposits to fund its operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments, which often lost money. The company also lacked, until mid-2021, any system to track its assets and liabilities, according to the complaint.

Despite its fiscal health declining, Celsius’s top executives allegedly concealed this information from the public, telling consumers that their deposits were safe and soliciting new customers just days before it froze customer accounts and filed for bankruptcy, according to the FTC. 

Mashinsky falsely claimed in an online video in May 2022 that “Celsius is stronger than ever, we have billions of dollars in liquidity.” And just a few days before freezing consumer withdrawals, Celsius falsely promised that it had “more than enough” assets to satisfy its consumer obligations.

In addition to banning Celsius and its affiliated companies from handling consumers’ assets, the proposed settlement prohibits the companies from misrepresenting the benefits of any product or service; from making false, fictitious, or fraudulent representations to any customer of a financial institution to obtain or attempt to obtain their financial information; and from disclosing nonpublic personal information about consumers without their express consent.

Featured image from Unsplash, chart from TradingView.com