Alex Machinsky, the founder and former CEO of bankrupt cryptocurrency firm Celsius, was arrested Thursday and charged with fraud, federal prosecutors said.
Mashinsky has also been sued by the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission. Under a settlement with the Federal Trade Commission, Celsius has agreed to pay $4.7 billion in compensation to the company’s customers, though the process of paying that total amount will be put on hold while the bankruptcy unfolds.
A person close to the investigation said Mr. Machinsky was arrested at his home in New York. The charges against him include wire fraud, commodity fraud and stock price manipulation.
Before it crashed last year, Celsius emerged as a kind of crypto bank that promised customers sky-high interest rates and handled tens of billions of dollars in deposits. As charismatic as he is, Mr. Mashinsky has appeared in YouTube videos where he claimed that Celsius was a safer and more equal alternative to traditional banks.
At its peak, Celsius controlled about $25 billion in crypto assets. But last summer, Celsius collapsed and filed for bankruptcy amid a broader meltdown in the cryptocurrency markets. In the process, it has ruined over 500,000 customers, many of whom have lost their savings.
Authorities said the company and Mr Mashinsky repeatedly lied to investors about its business model and how it makes money. It even lied about the number of clients it had and falsely told investors that their deposits were insured.