On September 13, former Celsius chief revenue officer Roni Cohen-Pavon appeared in Manhattan federal courtroom and entered a plea of guilty to charges of securities fraud, wire fraud, manipulation of security prices and conspiracy to commit price manipulation of the CEL token.
Cohen-Pavon, who was based in Israel when the U.S. Department of Justice filed its charges against him and Mashinsky in July, was released on bail pending a December 11 sentencing hearing, at which he could face up to 65 years in prison.
However, Cohen-Pavon won’t likely see anywhere near that much time as he’s agreed to cooperate with prosecutors in their quest to bring Mashinsky to justice for his role in last year’s dramatic collapse of Celsius. Billing itself as a digital asset lending/earning service, Celsius was in reality a Ponzi scheme from its inception, as detailed in a damning report by its bankruptcy court-appointed Examiner that was released in February.
Celsius has also been hit with a full-court press of civil suits by U.S. federal agencies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Federal Trade Commission (FTC). While the FTC quickly reached a settlement with what’s left of Celsius, its case against Mashinsky remains open, and he shows no sign of admitting his complicity in the massive fraud that he oversaw.
On September 11, Mashinsky’s attorneys filed a motion to dismiss the FTC complaint against him. The motion cites a series of weak arguments, including the FTC’s alleged failure to cite any rule violations, plus the fact that Mashinsky resigned as Celsius CEO not long after the company filed for bankruptcy, so it (allegedly) can’t be said that he “is violating’ or is “about to violate” the law. For what it’s worth, the complaint erroneously cites Mashinsky’s resignation as occurring on September 27, 2023, i.e. next week. (They’re not sending their finest, clearly.)
However, U.S. Attorney for the Southern District of New York Damian Williams also wants the FTC to back off, at least temporarily, so the DoJ can have a clear runway to deliver the unrepentant Mashinsky to a prison cell.
Late Monday, Williams also filed motions advising the courts handling the SEC’s case and the CFTC’s case against Celsius that the DoJ planned to intervene and seek orders “to stay this matter in its entirety until the conclusion of the Criminal Case.” In other words, the regulators can have what’s left of Mashinsky once the DoJ is done with him.
Hanging’s too good
The technicalities specified in Mashinsky’s FTC motion may be the best defense he can make, given the existence of countless company documents detailing his knowledge of the scam. Mashinsky personally earned around $42 million out of his former customers’ willingness to take him at his word, which makes his loud protests at U.S. authorities freezing his assets all the more galling.
Internal communications show Celsius staff chafing at Mashinsky’s constant demands for the company to repurchase his CEL tokens, not only to pad his purse but also to sustain the illusion that there were others interested in buying CEL. Other staffers congratulated themselves on boosting the price of this otherwise “worthless” token. Yes, well done.
Mashinsky now finds himself in the same boat as disgraced FTX founder Sam Bankman-Fried, another charter member of the Crypto Crime Cartel’s ‘I’ve done nothing wrong’ faction. With his court date now only weeks away, SBF has multiple former colleagues lining up to testify against him in exchange for comparatively lenient treatment.
WhatsApp chats between Mashinsky and Cohen-Pavon are already hitting the court dockets, and Cohen-Pavon likely has far more incriminating material at his disposal. Honestly, popcorn suppliers must be making a killing right now.
But Mashinsky may have one card left to play. Namely, the early involvement in Celsius by the individuals behind the Tether (USDT) stablecoin. At one point, Tether held a 7.73% stake in Celsius, making Tether the third-largest Celsius stakeholder. Celsius also borrowed over $1.8 billion in USDT, which required Celsius to post over $2.6 billion of its (customers’) assets as collateral that Tether liquidated when Celsius went under.
It’s natural to assume that these partners-in-crime likely know a lot about the closets where their respective skeletons are kept. Honestly, Mashinsky doesn’t strike us as the type that’s all that prepared to do hard time, so speak now or forever hold your prison bars and whimper like a baby.
even poster above this is claiming celcius is a ponzi. that's a bold claim and you'd have to have some research and facts to back it up.
— Adam Back (@adam3us) May 27, 2022
Oh, and just for fun, remember when Tether pal Adam Back was defending Celsius against claims that it was a Ponzi just weeks before its bankruptcy filing? Yeah, good times.
Meanwhile, the efforts to preserve whatever value is left in Celsius’s still-smoldering corpse continues unabated. Friday (22) marks the deadline for Celsius creditors to submit their vote on the Chapter 11 restructuring plan approved by a bankruptcy judge in August. A hearing has been scheduled for October 2 to consider the results of the vote.
The plan involves handing control to a group called (groan) Fahrenheit, which emerged triumphant from a court-approved auction in May. Fahrenheit will supply capital, management and technology for the ‘NewCo’ that will assume operational control of Celsius—in whatever form that is going forward.
Assuming the vote is affirmative, Celsius customers have been told they might reclaim anywhere from 67% to 85.6% of the funds they lent to Celsius pre-bankruptcy. There’s reportedly around $2 billion in assets up for distribution, while the company’s ‘illiquid assets’—including its institutional loans, ‘crypto’ mining business and alternative investments—will be managed by Fahrenheit.
Fahrenheit, which is led by former Alogrand CEO Steve Kokinos, also comprises digital asset miner US Bitcoin Corp (USBTC), Arrington Capital, Proof Group Capital Management and angel investor Ravi Kaza.
A board of directors largely consisting of individuals appointed by Celsius’s unsecured creditors committee will help oversee ‘NewCo’ operations. In addition to Kokinos, those nominated to serve on the nine-seat board include Arrington Capital founder Michael Arrington; USBTC president Asher Genoot; WeWork’s Elizabeth Lapuma; ICB Solutions CEO Scott Duffy, some investment banking types, as well as creditors committee members Scott Duffy and Thomas DiFiore.
In August, USBTC announced that it had reached a deal to host “an initial 8,500” mining units on behalf of Celsius Mining LLC at UBSTC’s Alpha Site in Texas. Since Celsius has around 122,000 mining rigs—part of its late-stage bid to find some way of generating revenue that didn’t involve the comatose CEL token—one can assume that those initial 8,500 rigs won’t be lonely for long.
Celsius previously tapped BTC miner Core Scientific to host and manage its mining operations, but the parties quickly fell out over who would pay the operations’ soaring electricity bills. The situation was dire enough that Core Scientific also filed for bankruptcy last year, leaving nobody working except the lawyers.
Last week, the two parties settled their dispute with a deal that will see Celsius assume control of Core Scientific’s non-operational Cedarvale mining data center in Ward County, Texas. The mutually agreed value of this site is $45 million but Celsius will only have to ante up a total cash consideration of $14 million. The transaction won’t impact Core’s mining fleet of some 206,000 machines.
Celsius’s interim CEO Chris Ferraro gave a shout-out to USBTC for playing “a key supporting role in structuring and executing the transaction.” USBTC president Genoot said the deal demonstrated Fahrenheit’s commitment to “driving further value to the Celsius estate prior to emergence” from bankruptcy.
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