The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against fallen crypto lender Celsius and its ex-boss, Alex Mashinsky after the latter was reportedly arrested on Thursday.
The agency accused Celsius of illegally raising billions of dollars through unregistered securities offerings, but only named CEL token as a relevant crypto security in the case.
The lawsuit, filed Thursday morning in a Manhattan federal court, claimed that both Celsius and Mashinsky “misled investors” by fraudulently manipulating the price of CEL – described as “Celsius’s own crypto asset security.”
CEL served a variety of internal functions for Celsius users, such as boosting owners’ earnings payouts on the Celsius platform. It was how Celsius raised money during its initial coin offering (ICO) in 2018.
The SEC took further issue with the company’s “Earn Interest Program” – one of its main offerings that provided users with interest for depositing their crypto. Payouts varied from asset to asset, with some cryptos promising interest above 17%.
“Defendants never filed a registration statement for their offers and sales of the Earn Interest Program, however, and no exemption from registration was available,” wrote the SEC.
For his violations, the SEC seeks civil and disgorgement penalties against Mashinksy, as well as restrictions barring him from purchasing, offering, or selling crypto asset securities in the future.
Celsius has also been sued by the U.S. Department of Justice (DOJ), the Commodities and Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC) on various charges of fraud and market manipulation.
The SEC has demonstrated outright hostility to crypto lending firms in the past due to their relationship with securities laws, and the questionably high rates offered on some coins relative to traditional savings accounts.
For instance, the agency helped force rival lender Nexo to exit the United States last year through legal constraints against providing a crypto lending business. Several such firms including Celsius, Voyager, BlockFi, and Genesis crumbled last year, and ultimately declared bankruptcy.
Meanwhile, staking services – which pay depositors with interest using yield provided by blockchain staking – have also been targeted by the SEC. The commission fined crypto exchange Kraken $30 million for its staking product in February and forced it to close the offering permanently.
In lawsuits against Coinbase and Binance last month, the SEC named multiple high-value tokens as “crypto asset securities,” including Cardano (ADA), Solana (SOL), Polygon (MATIC), and BNB.