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.