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Celsius Founder Alex Mashinsky Sentenced to 12 Years in Prison for Crypto Fraud

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Alex Mashinsky, the founder and former CEO of defunct crypto lender Celsius Network, was sentenced Thursday to 12 years in prison after pleading guilty to securities and commodities fraud in a case that stands among the most severe stemming from the 2022 cryptocurrency market collapse.

U.S. District Judge John Koeltl in Manhattan imposed the sentence, which also includes three years of supervised release and a $48.4 million forfeiture. The ruling comes after federal prosecutors accused Mashinsky, 59, of deceiving Celsius customers about the platform’s safety and artificially inflating the value of the CEL token, Celsius’ proprietary digital asset.

The prosecution sought at least 20 years of imprisonment, describing Mashinsky’s actions as a betrayal that caused billions in customer losses while he personally gained over $48 million.

“The case for tokenization and the use of digital assets is strong, but it is not a license to deceive,” said U.S. Attorney Jay Clayton in a post-sentencing statement.

Mashinsky had asked for a sentence of just one year and one day, expressing remorse and a desire to make amends. His attorneys did not immediately provide comment following the sentencing.

Founded in 2017, Celsius was based in Hoboken, New Jersey, and promised high-yield returns, offering up to 17% interest on some crypto deposits. Like other lenders in the crypto space, Celsius attracted customers with the promise of easy lending and high returns while funneling deposits to institutional borrowers in hopes of profiting from the spread.

However, the model collapsed under the weight of falling crypto prices. In July 2022, Celsius filed for Chapter 11 bankruptcy with a $1.19 billion balance sheet deficit, after a customer run on deposits.

Mashinsky’s sentencing follows the high-profile conviction of FTX founder Sam Bankman-Fried, who is serving 25 years for fraud and is currently appealing. Mashinsky also faces ongoing civil lawsuits from the SEC, CFTC, FTC, and New York Attorney General Letitia James.

Born in Ukraine, Mashinsky immigrated to Israel and later moved to New York City in 1988, where he became a prominent tech entrepreneur before his fall from grace in the crypto world.

Do Kwon Pleads Not Guilty to U.S. Fraud Charges in $40 Billion Crypto Collapse

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Do Kwon, the South Korean founder of Terraform Labs, pleaded not guilty on Thursday to U.S. fraud charges related to the collapse of his cryptocurrencies TerraUSD and Luna, which resulted in an estimated $40 billion in losses in 2022. The plea followed Kwon’s extradition from Montenegro earlier this week.

Federal prosecutors in Manhattan unsealed a nine-count indictment against Kwon, charging him with securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering. The allegations stem from claims that Kwon deceived investors about the stability and mechanisms of TerraUSD, a so-called stablecoin intended to maintain a value of $1.

Court Proceedings

At the hearing before U.S. Magistrate Judge Robert Lehrburger, Kwon, 33, appeared in casual attire as his lawyer, Andrew Chesley, entered the plea. Kwon was ordered to remain detained, as his legal team did not request bail. He is scheduled to return to court on January 8.

Prosecutors allege that in 2021, Kwon falsely claimed that the “Terra Protocol,” a computer algorithm, restored TerraUSD’s value when it dipped below its $1 peg. In reality, prosecutors assert, a high-frequency trading firm secretly purchased millions of dollars worth of TerraUSD to artificially stabilize its price. These actions allegedly misled retail and institutional investors, driving up the value of Luna, a related cryptocurrency, to $50 billion by early 2022.

When TerraUSD’s value plummeted again in May 2022, prosecutors said efforts to support its price failed, leading to a crash that impacted other cryptocurrencies, including Bitcoin, and caused widespread market disruption.

Legal and Financial Fallout

In June, Kwon agreed to an $80 million civil fine and a ban on crypto transactions as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission (SEC). The SEC had previously identified Jump Trading as the firm that supported TerraUSD’s price in 2021, though prosecutors have not named it in the current case.

Terraform Labs declared bankruptcy in January 2023, and Kwon faced additional legal troubles in Montenegro, where he was detained on forgery charges in March 2023 before being extradited to the U.S.

Industry-Wide Reckoning

Kwon is among several cryptocurrency leaders facing legal scrutiny following the 2022 downturn in digital asset prices. Sam Bankman-Fried, founder of FTX, is appealing his conviction and 25-year sentence for defrauding customers out of $8 billion, while Alex Mashinsky, former CEO of Celsius Network, recently pleaded guilty to fraud charges.

As one of the most high-profile cases in the crypto sector, Kwon’s trial is expected to serve as a critical test of accountability in the rapidly evolving cryptocurrency market.