Celsius Founder Alex Mashinsky Sentenced to 12 Years for Crypto Fraud

Alex Mashinsky, the founder of cryptocurrency lending platform Celsius Network, has been sentenced to 12 years in prison for defrauding hundreds of thousands of customers. These customers were drawn in by the firm’s promise of high interest rates on their digital asset deposits.

Mashinsky’s sentencing by US District Judge John Koeltl in Manhattan followed his guilty plea in December. Federal prosecutors had sought a longer 20-year term, describing the 59-year-old former CEO as “unrepentant.”

Celsius’s collapse and subsequent bankruptcy were significant events in the 2022 “crypto winter,” a period that saw billions of dollars in digital asset value evaporate. Mashinsky admitted to making misleading statements regarding Celsius’s financial stability and engaging in manipulative trading practices.

The Justice Department, under President Joe Biden, has pursued several high-profile prosecutions within the crypto industry. This includes the case of Sam Bankman-Fried, whose FTX exchange failed shortly after Celsius, and who is currently serving a 25-year sentence for fraud. Terraform Labs founder Do Kwon is also awaiting trial.

Interestingly, Mashinsky’s sentencing occurs as the Trump administration appears to be shifting its approach to crypto-related investigations, signaling a potentially more lenient stance towards the industry. The Justice Department recently issued new guidelines suggesting a reduced focus on certain types of criminal cases, indicating they might be better addressed by regulatory bodies. However, the administration clarified that it would continue to prosecute cases involving the defrauding of crypto investors.

Celsius gained popularity by positioning itself as a secure alternative to traditional banks for cryptocurrency holdings, offering significantly higher interest rates. This pitch was heavily promoted through Mashinsky’s charismatic presentations on YouTube and social media. At its peak, Celsius managed approximately $25 billion in assets.

However, the company faced a liquidity crisis during the crypto market downturn in June 2022, leading to a halt in withdrawals and a subsequent bankruptcy filing a month later. Prosecutors revealed that Celsius customers lost access to over $5 billion in cryptocurrency, although around $3 billion has since been recovered.

As part of his guilty plea, Mashinsky acknowledged making a series of overly optimistic and misleading statements about Celsius’s financial health in his “Ask Mashinsky Anything” YouTube videos. He also admitted to engaging in manipulative trading to artificially inflate the price of Celsius’s native token, CEL. The government stated that Mashinsky profited approximately $42 million from his CEL trading activities.

Mashinsky’s legal team, highlighting his background as a father of six who immigrated to the US from Ukraine via Israel, had requested a significantly shorter prison sentence of just over a year. They portrayed him as someone caught off guard by the rapid crypto market decline and maintained that he never intended to defraud anyone.

During the sentencing hearing, Mashinsky, visibly emotional, apologized for his actions and described his false statements as “inexcusable.” He claimed that the decision to suspend withdrawals was made hastily in an attempt to protect Celsius’s largest customers from complete financial ruin.

“All my actions were meant to protect my community, and I failed,” he stated.

His lawyers urged the court not to draw parallels between Celsius and FTX, arguing that their client had been unfairly characterized by prosecutors as a “financial serial killer.”

However, prosecutors countered by emphasizing Mashinsky’s “years-long campaign of lies and self-dealing” that resulted in billions of dollars in losses and affected countless customers. They pointed to over 200 victim impact letters submitted to the judge, many of which called for a severe punishment.

“His crimes were not the product of negligence, naivete, or bad luck,” prosecutors argued in their sentencing memo. “They were the result of deliberate, calculated decisions to lie, deceive, and steal in pursuit of personal fortune.”

The case is formally known as US v. Mashinsky, 23-cr-00347, in the US District Court for the Southern District of New York.