WASHINGTON—The Federal Trade Commission said a settlement has been reached with bankrupt cryptocurrency platform Celsius Network that will permanently ban it from handling consumers’ assets.
It also charged three former executives with “tricking” consumers into transferring cryptocurrency onto the platform by falsely promising that deposits would be safe and always available.
The proposed settlement with Celsius and its affiliates will permanently ban the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets. The companies also agreed to a judgment of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings.
Ex-Execs Decline to Agree
The former executives—ex-CEO and Co-Founder Alexander Mashinsky, along with Celsius’s other co-founders Shlomi Daniel Leon and Hanoch “Nuke” Goldstein—have not agreed to a settlement and the FTC’s case against them will proceed in federal court, the FTC said.
According to the FTC, New Jersey-based Celsius—which filed for bankruptcy in July 2022—marketed a variety of cryptocurrency products and services to consumers, including interest-bearing accounts, personal loans secured by their cryptocurrency deposits, and a cryptocurrency exchange.
‘We Have Much Less Risk’
According to a complaint filed by the FTC in federal court, Mashinsky, Leon and Goldstein marketed the platform as a safe place for consumers to deposit their cryptocurrency, claiming in online videos and other forums that its platform was safer than banks because “we have less risk, we have much less risk.”
The FTC said the company and its top executives deceived users by falsely promising them that they could withdraw their deposits at any time, that the company maintained a $750 million insurance policy for deposits, that it had sufficient reserves to meet customer obligations, and that those in its Earn program could earn rewards on deposits of cryptocurrency assets as high as 18%annual percentage yield (APY).
Meanwhile, Contrary to Claims…
They also repeatedly claimed that the company did not make any unsecured loans, the FTC said, adding that wasn’t true.
“Many consumers reported that these promises were important factors in their decision to deposit cryptocurrency with Celsius,” the FTC said. “In opening accounts with Celsius, consumers were required to provide access to sensitive information including their bank account and other financial information.
“Far from securing customers’ cryptocurrency deposits, Celsius took title to and misappropriated these deposits totaling more than $4 billion,” the complaint continued. The company used consumer deposits to fund its operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments, which even the company acknowledged often lost money
“And contrary to its executives’ promises, Celsius routinely made unsecured loans, totaling $1.2 billion as of April 2022,” the FTC stated.
Not Much in Reserves
At the same, the complaint charges that Celsius only had a small capital reserve that would have allowed a fraction of its customers to withdraw their cryptocurrency within one week. And, Celsius did not hold a $750 million insurance policy for deposits. The company also lacked, until mid-2021, any system to track its assets and liabilities, according to the complaint.”
The FTC said Celsius and its top executives also failed to deliver the returns they promised on consumers’ cryptocurrency. The company only provided the highest returns to those who enrolled in its loyalty program and invested in a handful of lesser-known cryptocurrencies, and gave most participants far less than promised, according to the government.
Terms of Settlement
In addition to banning Celsius and its affiliated companies from handling consumers’ assets, the proposed settlement:
- Prohibits the companies from misrepresenting the benefits of any product or service; from making false, fictitious, or fraudulent representations to any customer of a financial institution in order to obtain or attempt to obtain their financial information
- Prohibits the companies from disclosing nonpublic personal information about consumers without their express consent
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