September 12, 2023 at 15:31 GMTModified date: September 12, 2023 at 15:31 GMT
September 12, 2023 at 15:31 GMT

Former Celsius CEO Mashinsky files motion to dismiss FTC case

Mashinsky has approached the court seeking dismissal of the US Federal Trade Commission (FTC) case against him “in its entirety”.

Former Celsius CEO Mashinsky files motion to dismiss FTC case

Former Celsius CEO Alex Mashinsky has approached the court seeking dismissal of the United States Federal Trade Commission (FTC) case against him “in its entirety”. The founder and former CEO of the now-bankrupt crypto lender is currently out on bail.

Mashinsky has been facing multiple charges of criminal fraud and market manipulation from various US regulatory agencies ever since the infamous implosion of his company in 2022, which was one of the largest crypto-lending platforms in the industry back then. However, he has pleaded not guilty to multiple charges filed against him and is now out on bail on a $40million bond.

The US FTC issued a $4.7billion fine against bankrupt crypto lender Celsius Network in July this year. The lawsuit was filed against the former Celsius founder along with its co-founders, Shlomi Daniel Leon and Hanoch ‘Nuke’ Goldstein. The regulator claimed that Celsius “squandered billions in user deposits” after “duping” customers into depositing funds.

Its executives allegedly lied about the well-being of the company as the FTC claimed: “While lying to their customers to keep them from withdrawing their cryptocurrency deposits, Leon, Goldstein, and Mashinsky protected themselves by withdrawing significant sums of cryptocurrency from Celsius two months before the company filed for bankruptcy. Consumers subsequently lost access to their life savings, college funds, and money saved for retirement.”

On the same day, the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) also filed lawsuits against Celsius. Mashinsky was then indicted on seven fraud-related charges by the US Department of Justice and was subsequently taken into custody.

In the recent motion filed by Mashinsky, his legal counsel argued that the allegations against the former CEO do not support the claim that he knowingly made a misstatement to “fraudulently obtain customer information from a financial institution”.

These accusations do not meet the standards for a claim under the Gramm-Leach-Bliley Act (GLBA), where the 1999 law requires knowingly making false claims to collect customer information fraudulently from a financial institution.

In addition to the fact that Celsius is in bankruptcy and entered into a settlement agreement with the FTC, the lawyers further argued that the complaint cannot substantiate a claim that Mashinsky “is violating” or is “about to violate” the law because he resigned from his position as the CEO of Celsius on 27 September 2023.

Celsius’ former chief technology officer – Goldstein – also took to the court to convey his belief that his association with other Celsius executives unjustly linked him to the case. In a separate filing, he pointed to the FTC’s reliance on his retweet of a Celsius blog as evidence.

Mashinsky’s lawyers have also claimed that the FTC seems to be basing its case against Goldstein solely on the fact that he retweeted a blog post by Celsius. According to Goldstein, this behaviour is being misconstrued as a sign of complicity or participation in the alleged misconduct.

Both Mashinsky and Goldstein have asked for the FTC to establish clearer rules before pursuing cases such as those related to marketing fraud. On the other hand, US Attorney Damian Williams has requested the court to pause FTC’s proceedings. This move is aimed to prevent any potential prejudice to the parallel criminal cases that are ongoing related to Mashinsky.