Lawyers representing Alex Mashinsky have argued that he “did not intend to defraud or harm anyone” — and the claims he made in weekly videos to Celsius customers were done in good faith.

What Celsius case is about?

Celsius Network was one of the biggest casualties of a brutal crypto winter in 2022, with the embattled lender suddenly freezing the withdrawals of 1.7 million customers.

The company had suffered from a huge black hole in its balance sheet — and abruptly tipped into bankruptcy, blaming “extreme market conditions.” 

While founder Alex Mashinsky regularly insisted his platform was “better than a bank,” with yields that seemed too good to be true, prosecutors allege it was different behind the scenes.

The Securities and Exchange Commission’s claimed that false and misleading statements were made to investors, and there was widespread market manipulation of its native token CEL.

And while Celsius had insisted that it was a safe investment opportunity, regulators warned “significant risks” had been taken with investors’ funds.

Now, more than two years on from the doomed firm’s spectacular collapse, Mashinsky is going on trial in New York — and faces seven criminal charges.

They include wire fraud, securities fraud, and commodities fraud. If convicted, the fallen entrepreneur could face up to 115 years behind bars.

When the arrest took place back in July 2023, U.S. Attorney Damian Williams declared:

“If you rip off ordinary investors to line your own pockets, we will hold you accountable.” 

The Department of Justice has shown it has a strong track record of untangling messy crypto collapses and gathering the evidence needed to secure convictions.

FTX went under in November 2022 — and less than a year later, Sam Bankman-Fried was found guilty of all seven counts against him and later jailed for 25 years.

His legal team have now launched an appeal, and argue that he was treated unfairly by the judge throughout his trial. 

Ex-executive in Celsius, Roni Cohen-Pavon, pleaded guilty to four charges on Sep. 13. Cohen-Pavon, an Israeli citizen, is free on a $500,000 bond and may leave the U.S. to visit Israel. He agreed to cooperate with prosecutors.

Mashinsky’s strategy

Lawyers representing Mashinsky have argued that he “did not intend to defraud or harm anyone” — and the claims he made in weekly videos to Celsius customers were done in good faith.

They are calling for testimony from six former executives within the company — including its chief financial officer. His law firm Mukasey Young wrote in a filing last week:

“In short, it appears that Mr. Mashinsky has been charged for acts and events as to which he had no knowledge, formed no criminal intent, and at times, even instructed the opposite. Mr. Mashinsky should be granted the opportunity to question the individuals whose conduct has been laid at his feet.”

The lawyers went on to warn that “the stakes are high” given the potential sentence that Mashinsky faces — and given that this could potentially be a life term, the former businessman should have the opportunity to gather evidence in his defense.

A key challenge for Mashinsky lies in how five of the witnesses cannot be subpoenaed by a U.S. court because they live abroad:

“An inability to obtain the testimony of these witnesses would result in a failure of justice.”

Creditors repaid

In recent months, work has been underway to compensate the customers locked out of their savings when Celsius went under.

Creditors have been receiving up to 85 cents on the dollar — considerably more than those owed money by other firms that have tipped into bankruptcy.

This is partly related to how the crypto markets have rallied in recent months, but nonetheless, a large chunk of the recovered funds have gone to the lawyers overseeing the Chapter 11 proceedings.

Receiving payouts has been a bittersweet experience for many victims. Although it ends many months of uncertainty, many would have ended up missing out on crypto’s recent rally.

Now out of bankruptcy proceedings, Celsius has been reborn as Ionic Digital, a company that’s focused on Bitcoin mining. The lender’s creditors are among its shareholders.

Last month, it was announced that a “state-of-the-art” facility had gone live in Texas that boasts over 15,000 miners — the first of four buildings to be created.

Figures from Ionic also show that the business also mined 1,331 BTC in the six months from February to July.

Despite this financial resolution, many of those caught up in the Celsius debacle will be watching Alex Mashinsky’s trial closely — with some submitting victim impact statements to explain how they were affected by the bankruptcy.

Consumer advocacy group Consumers’ Research has released a report accusing Tether, the issuer of the USDT stablecoin, of being opaque and not conducting a full audit of its dollar reserves.

Teather is accused of being non-transparent (again)

Consumers’ Research analysts said that the USDT issuer has yet to conduct an audit of its reserves, although it has promised to do so since 2017. In addition, the stablecoin received a “4 out of 5” stability rating in the S&P Global rating, where “5” is the worst.

The report includes a letter to the governors of all U.S. states, which reports on Tether’s opaque activities. In addition to the open letter, Consumers’ Research has launched a special resource with a detailed description of its claims.

Thus, the organization accuses Tether of repeatedly promising to audit its reserves thoroughly. Despite promises, the project has never provided a full report from a respected auditing firm. They also saw similarities with the situation of FTX and Alameda Research. Tether’s lack of transparency is reminiscent of the circumstances that led to the collapse of FTX.

“As you will see outlined in the attached Consumer Warning, Tether has many of the same issues that FTX and Celsius had before their collapse – potentially costing consumers billions of dollars using deceptive and misleading marketing tactics that are inconsistent with the truth.”

Finally, the company is blamed for doing business with unscrupulous partners. Analysts also believe that the company failed to prevent USDT from being used to circumvent international sanctions and other illegal activities.

At the same time, the first stage of Consumers’ Research against Tether was launched in June. The company accused the issuer of the USDT stablecoin of having ties to Russian and Chinese authorities, terrorist organizations, and drug cartels.

Incognito dollar for sanctioned countries

Earlier, Wall Street Journal (WSJ) journalists said that USDT has become an “incognito dollar” for countries such as Venezuela and Russia, ensuring the free transit of capital abroad.

The article’s authors referred to the fact that USDT threatens the financial system and national security of the United States since it remains unregulated. The WSJ claims that the asset’s trading volume for 2023 exceeded the same indicator for the Visa payment system.

In addition, stablecoin issuer Tether’s profit for the same period amounted to $6.2 billion, which is more than the world’s largest ETF provider, BlackRock. The WSJ emphasized that the company managed to achieve such figures with a staff of 100 people.

WSJ singled out Venezuela and Russia, noting that USDT is widely used in these countries to circumvent sanctions. In the first case, the state-owned company Petroleos de Venezuela is using a stablecoin to pay for oil supplies.

“Russian oligarchs and weapons dealers shuttle Tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil firm takes payment in tether for cargoes. Drug cartels, fraud rings and terrorist groups such as Hamas use it to launder income.”

The article’s authors also pointed to the rapid scaling of USDT within the global market. In particular, Tether’s efforts to promote itself in Georgia were highlighted here.

Journalists quote Eralp Hatipoglu, CEO of the company’s local partner, the CityPay.io service, as saying that the organization provides international payments in USDT worth about $50 million monthly. According to him, this is due to the pressure exerted by the United States on the global banking system.

Hatipoglu also stated that the service carefully checked transaction participants but did not provide evidence.

Claims against Tether are gaining momentum

Earlier in August, bankrupt Celsius Network accused Tether of misappropriating assets and violating the terms of the agreement.

The court documents indicate that in 2020, Celsius Network entered into an agreement with Tether. Under the agreement, the company received borrowed funds in USDT stablecoins. In response, the platform sent Tether 39,542 Bitocin (BTC) as collateral.

Celsius Network representatives claim that Tether hastily liquidated a large number of bitcoins in 2022, violating the terms of the contract and leading to the company’s bankruptcy.

Tether CEO Paolo Ardoino responded that Celsius Network decided not to provide additional collateral and instructed Tether to liquidate bitcoins to close the position.

There is another equally resonant case in the issuer’s history, which ended relatively recently—a lawsuit against Tether and Bitfinex. The scandal erupted back in 2019. Representatives of Tether and the Bitfinex crypto exchange initially hid the close relationship between the companies. For a long time, the parties did not advertise that both organizations belong to the same parent structure — iFinex Inc. The presence of common managers was also hidden. This led to many suspicions of a conflict of interest.

It was later revealed that Bitfinex used Tether’s reserves to cover its losses. There were also allegations of market manipulation. The New York State Attorney General’s Office uncovered details of the illegal operations. The companies were later forced to admit their connection.

This case raised doubts about how well Tether is backed. Tether and Bitfinex later settled the case, paying a fine of $18.5 million. The companies also agreed to provide regular reports on their reserves.

Is Tether really that bad?

Tether Limited Inc. has been facing fraud allegations almost since its founding. The USDT issuer’s history really does have some dark pages. However, judging by their actions, the company’s representatives are ready to take responsibility for mistakes and fight for the project’s development.

The claims of Consumers’ Research and The Wall Street Journal are not unfounded. Many of them could be resolved by an independent audit.

The claims against Tether have hardly changed over the years. Despite the pressure, the project continues to live and develop. Tether may be able to step over the subsequent investigations with negative conclusions, the validity of which, in turn, can also be challenged.

As Democrats and Republicans argue over DeFi, what message does Trump’s silence send to the crypto community? Is it a sign of disinterest or strategic neutrality?

DeFi gets the spotlight

On Sep. 10, the first-ever Congressional hearing on decentralized finance took place, marking an important moment in the evolution of this technology.

Titled “Decoding DeFi: Breaking Down the Future of Decentralized Finance,” the hearing was led by Congressman French Hill and lasted nearly two-and-a-half hours. 

U.S. lawmakers gathered to discuss both the potential benefits and risks that DeFi could introduce to the financial system.

The hearing exposed a clear divide among lawmakers. Republicans, led by Hill, were optimistic about DeFi’s ability to remove intermediaries and transform financial markets. 

As Hill stated, “by substituting intermediaries for autonomous, self-executing code, decentralized finance can shift the way financial markets and transactions are currently structured and governed.”

Meanwhile, Democratic lawmakers raised concerns, focusing on DeFi’s potential misuse, particularly its role in enabling criminal activity. While Republicans called for lighter regulations, Democrats advocated for stricter oversight, citing the risks of illicit use.

What does this hearing mean for the future of DeFi and the broader crypto market, especially with the U.S. presidential elections approaching?

A clash of perspectives on DeFi

The hearing itself turned into a battlefield of opinions, with sharp contrasts in how lawmakers viewed DeFi. The subcommittee chair, Hill, kicked off the discussion by focusing on the opportunities DeFi and tokenization could offer to finance.

However, not everyone saw it that way. Congressman Brad Sherman, a Democrat from California, took a more critical approach. He expressed concerns that DeFi might be nothing more than a tool for tax evasion, especially for the ultra-wealthy.

What we have here is an effort to liberate billionaires from income taxation… Every time a billionaire successfully cheats on his taxes, a member of the Freedom Caucus earns his wings.

In response to Sherman’s concerns, Peter Van Valkenburgh, director of research at Coin Center, provided a counter-argument. He acknowledged that tax evasion is a crime but pointed out that DeFi’s transparent, decentralized ledger makes it difficult for bad actors to hide their activities.

Tax evasion is a crime. It should be aggressively policed. I do not, however, think that tax evasion and its existence warrants a 100% surveilled and controlled financial system.

Van Valkenburgh also pointed out the confusion surrounding tax guidance from the IRS. He argued that many crypto users want to comply with tax laws but lack clear instructions on how to do so.

A difficult area in the cryptocurrency space has been getting clear tax guidance from the IRS on how Americans can pay their taxes when they earn capital gains, or perhaps their wages, on these networks

He added that criminals are more likely to use traditional financial systems to hide illicit funds rather than transparent blockchain networks.

On the other side, Mark Hays, Senior policy analyst at Americans for Financial Reform, painted DeFi in a less favorable light. He described the space as volatile and rife with scams, where investors often face devastating losses.

Hays stressed that DeFi should not get a free pass and that existing securities laws should apply to decentralized systems to protect investors.

Meanwhile, Amanda Tuminelli, the chief legal officer at DeFi Education Fund, took a different approach. She highlighted DeFi’s potential to democratize finance. According to Tuminelli, traditional financial systems rely on intermediaries, often acting as gatekeepers.

“Big banks can and do deny access to the system for discriminatory reasons or no reasons,” she stated, contrasting this with DeFi’s open-access nature. She suggested that anyone with an internet connection can use DeFi, calling it “the epitome of financial inclusion.”

Tuminelli argued that treating DeFi as traditional finance is not the right approach, as the underlying structures are fundamentally different. She suggested that regulations should take into account the self-custodial nature and transaction anonymity of decentralized systems.

Crypto left out of the presidential debate spotlight

Vice President Kamala Harris and former President Donald Trump faced off on Sep. 10 in the second presidential debate of the 2024 election. Despite Trump’s well-known pro-crypto stance, the debate avoided any mention of crypto entirely.

Instead, the focus was on traditional economic issues, with no reference to crypto, blockchain, or broader financial technology topics.

Harris’ strong performance during the debate appeared to unsettle Trump, particularly as he struggled to defend his position on contentious issues like abortion.

All of this seemed to affect the crypto market, as Bitcoin (BTC) dropped from around $58,000 to $56,000 after the debate. As of Sep. 11, it has slightly recovered, hovering around $56,800.

Ethereum (ETH), the second-largest crypto by market cap, also experienced a minor dip of about 0.5%, trading at around $2,340 during the same period.

In a surprise for Trump, who has long positioned himself as a champion of deregulated financial markets, his odds of winning, according to online betting platform Polymarket, fell from 52% before the debate to 50% as of this writing.

Meanwhile, a CNN flash poll reflected Harris’ dominance, with 63% of viewers stating she outperformed Trump. However, most respondents noted that the debate wouldn’t influence their vote in November.

As the campaign continues and the demand for a third debate grows, it remains to be seen whether crypto will finally take center stage.

What to expect next?

Throughout the Biden administration, Democrats have consistently been skeptical of crypto, highlighting the risks and pushing for stronger regulations. Amid this, Vice President Kamala Harris has remained silent on the issue, making her stance unclear.

Meanwhile, Trump, who once strongly opposed crypto, has shifted his tone in an effort to attract pro-crypto voters. In recent months, Trump has shown more openness toward blockchain and crypto on several instances. 

However, like Harris, he has remained silent when it matters most, such as during the Trump vs. Musk Twitter space conversation in August and again during the second presidential debate, where crypto was notably absent.

The future of crypto and DeFi in the U.S. remains uncertain. With the upcoming election, how the next administration handles this growing sector could have a lasting impact on both innovation and regulation in the financial space.