- The former CEO of the crypto lender pleaded guilty to fraud.
- Prosecutors are seeking a 20-year prison term.
- Mashinsky's lawyers laid out detailed arguments for why he's nowhere near as bad as jailed FTX CEO.
Lawyers for Alex Mashinsky insist the 59-year-old tech executive is no Sam Bankman-Fried.
Federal prosecutors say otherwise.
At stake is the fate of the co-founder of Celsius, the crypto lender that went bankrupt in 2022 not long after the collapse of Terra rocked the market.
Prosecutors on Tuesday asked Judge John G. Koeltl to impose a 20-year prison sentence, citing Mashinsky’s “continuing refusal to accept responsibility for his crimes.”
Plea agreement
In duelling court documents filed over the past two weeks, Mashinsky and prosecutors have continued to debate his role in the collapse of Celsius, the crypto lending company Mashinsky helped start in 2017.
That’s despite a December plea agreement in which the executive pleaded guilty to two counts of fraud.
Mashinksy’s behaviour since pleading guilty “raises concerns about whether, absent a serious sentence, he will recognise the magnitude of his crimes and be deterred from returning to fraud if given the opportunity,” prosecutors wrote.
‘There are no allegations that Alex misappropriated, embezzled or stole any customer assets.’
— Alex Mashinsk'y lawyers
A sentencing hearing for Mashinsky — a Ukrainian émigré, Israeli war veteran, and author of an unpublished, 300-page book about gravity called “The Cheerios Effect” — is scheduled for May 8.
In a 69-page letter to Koeltl, lawyers detailed Mashinsky’s childhood, his service in the Israel Defense Forces, and an otherwise “spotless” 30-year career in tech.
They asked for a sentence of one year and one day.
Mashinsky may have lied to customers — but it was a crash in crypto prices, rather than widespread fraud, that caused Celsius’ bankruptcy in June 2022, the lawyers wrote.
That’s in contrast with the crypto CEO he is being compared to.
Sam Bankman-Fried’s crypto exchange, FTX, also paused customer withdrawals before filing for bankruptcy in November of that year.
Mashinsky’s lawyers say their client’s case is far different.
“There are no allegations – let alone any proof – that Alex misappropriated, embezzled or stole any customer assets or any Celsius money. He did not,” Mashinsky’s lawyers wrote.
“That is the most crucial difference between the cases.”
There’s another difference: Bankman-Fried pleaded not guilty and fought his charges.
Capping a five-week trial, he was convicted of orchestrating a multibillion-dollar fraud. He was eventually sentenced to 25 years in prison, with the presiding judge citing Bankman-Fried’s apparent lack of remorse.
“Alex pleaded guilty, accepted responsibility for his conduct and waived his right to appeal,” Mashinsky’s lawyers wrote, extending the contrast.
‘Difference in tactics’
In a 100-page response filed Tuesday, prosecutors could barely contain their ire.
“His crimes were not the product of negligence, naivete, or bad luck,” they wrote. “They were the result of deliberate, calculated decisions to lie, deceive, and steal in pursuit of personal fortune.”
It’s true that Bankman-Fried went to trial while Mashinsky pleaded guilty, the prosecutors wrote.
“But this seems to have been merely a difference in tactics,” they continued. “Mashinsky can hardly be said to have recognised the error of his ways when he largely contests that he made any errors at all.”
‘At one point Mashinsky told his marketing team to ‘fuck legal’ and not listen to them.’
— US prosecutors
Mashinsky was indicted on seven counts of fraud.
In December, he pleaded guilty to two charges: lying about Celsius’s financial condition and operations in order to convince investors to deposit their Bitcoin; and defrauding investors who bought the company’s token, CEL, by manipulating its price and lying about selling his own personal holdings.
Mashinsky has cited two particular moments in the letter to Judge Koeltl.
There was a December 2021 interview in which he said Celsius had received regulators’ blessing. In fact, the company was under investigation by the Securities and Exchange Commission.
And there was a social media post in September 2019 in which he said he was not selling his Celsius tokens. But he was selling, and would ultimately earn $46 million from those sales.
His lawyers explained the moments as motivated by “an over-eagerness to champion his company” and the fear that selling would be misinterpreted as a vote of no-confidence in his own company.
Ultimately, Celsius’s bankruptcy was the result of a “market collapse the likes of which the crypto industry had never seen,” Mashinsky’s lawyers argue — not widespread fraud.
The government’s case
Mashinsky’s lies went far beyond the two his lawyers mentioned in their letter to Judge Koeltl, prosecutors say. Those lies amounted to a years-long effort to defraud unsophisticated retail investors and enrich Mashinsky.
During ask-me-anything sessions on social media open to the public, Mashinsky lied repeatedly, prosecutors say.
His alleged falsifications included the amount of money raised during Celsius’ initial coin offering; the safety of Celsius’ investment strategy; and the company’s regulatory status.
According to prosecutors, Mashinsky also falsely said that Celsius was profitable and sustainable; that rewards paid to customers came from its revenue; that it had enough crypto on hand to repay customers in the event of a bank run; that he wasn’t selling his CEL; and that CEL’s price was determined by the market, rather than Celsius’ own manipulation of the token’s price.
Panicking employees
Government exhibits show employees panicking over Mashinsky’s refusal to change his rhetoric and business approach, despite warnings they could run afoul of the law.
“At one point Mashinsky told his marketing team to ‘fuck legal’ and not listen to them; the head of compliance threatened to resign as a result of the incident,” prosecutors wrote.
The company used investor money and customer deposits to fund the unsustainable, outsize yield it paid on those very deposits, prosecutors said.
By April 2021, two thirds of its balance sheet was denominated in loans it had made, posted collateral, and CEL, all difficult to sell in the event of a bank run.
Mashinsky repeatedly said everything was fine.
“We are profitable and that the yield that is generated is actual yield,” he said on social media. “It’s not subsidised. It’s not paid with either investors’ money or some tokens that you printed or whatever.”
As the company tumbled into bankruptcy, he removed almost all his assets from Celsius, even as he insisted “all user funds are safe” and “we all have our money in the same platform,” according to prosecutors.
Trust funds
Mashinsky’s attorneys have said he has been wracked by guilt and will be left destitute.
Prosecutors have a different take on Mashinsky’s post-Celsius life.
“He has shielded most of his substitute assets by putting them into an elaborate system of trusts that — while purportedly organised for the benefit of his children — continue to cover Mashinsky’s own living expenses with the consent of the trustee, Mashinsky’s sister,” they wrote.
“And even as Mashinsky claims to have agreed to forfeit the assets that the government traced directly to the proceeds of his crimes, his wife has asserted that she has a superior claim to the property, which, if credited, will reduce what the government seizes and returns to Mashinsky’s victims.”
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.