Investing.com -- The bankrupt cryptocurrency lender Celsius Network has been fined $4.7 billion and permanently banned from handling consumers' assets by U.S. trade regulators, while three of its former executives were charged with duping into transferring their digital tokens into the platform.
Prior to filing for bankruptcy in 2022, Celsius froze withdrawals and transfers for its 1.7 million customers, saying the move was necessary due to "extreme" market circumstances.
But the U.S. Federal Trade Commission said in a statement Thursday that New Jersey-based Celsius had deceived users by falsely promising them that they could withdraw their deposits at any time. The FTC added that the company also failed to fulfill pledges to have sufficient reserves on hand to meet customer obligations and maintain a $750M insurance policy for deposits. Celsius also falsely said that some users could earn rewards on deposits as high as 18% annual percentage yield, the FTC noted.
“Celsius touted a new business model but engaged in an old-fashioned swindle,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a statement.
According to the FTC, the proposed settlement with Celsius will see the firm and its affiliates barred from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw assets.
Celsius was also hit with a $4.7B penalty, although the FTC noted that this will be suspended to allow the business to continue returning assets to consumers via its bankruptcy proceedings.
Meanwhile, former Celsius executives Alexander Mashinsky, Shlomi Daniel Leon and Hanoch Goldstein have not agreed to a settlement and the FTC's case against them will proceed to federal court.
The announcement comes as the U.S. attorney in Manhattan announced that Mashinsky, the co-founder and former chief executive of Celsius, was arrested and charged with fraud on Thursday. An unsealed indictment showed that Mashinsky, as well as ex-Chief Revenue Officer Roni Cohen-Pavon, faced a combined total of eleven criminal counts.
Separately, the U.S. Securities and Exchange Commission also sued Mashinsky and Celsius, a court filing showed Thursday, alleging that both he and the firm misled investors and raised billions of dollars through the sale of unregistered cryptocurrency asset securities.
Mashinsky and Celsius already face a lawsuit from New York's attorney general over fraud claims.
Mashinsky was not immediately available for a request for comment from Reuters.