The Federal Trade Commission (FTC) has announced a settlement with Celsius Network, a bankrupt cryptocurrency platform, following allegations of fraudulent practices. The settlement will permanently ban Celsius from handling consumers’ assets and charges three former executives with duping consumers into transferring cryptocurrency onto the platform under false pretenses. The FTC’s actions aim to hold the executives accountable and send a clear message that emerging technologies are subject to the law.
Misleading Promises and Deceptive Practices
Celsius, based in New Jersey, marketed various cryptocurrency products and services to consumers, including interest-bearing accounts, secured personal loans, and cryptocurrency exchange. According to the FTC’s complaint filed in federal court, the company’s former CEO and co-founders misrepresented the platform as a safe place for cryptocurrency deposits, claiming it was even safer than traditional banks. They promised that deposits could be withdrawn at any time, the company had a $750 million insurance policy, and sufficient reserves to meet customer obligations. Additionally, Celsius claimed that its Earn program could offer rewards on cryptocurrency deposits with an annual percentage yield (APY) as high as 18%.
Breach of Trust and Misappropriation
These deceptive promises influenced many consumers to deposit their cryptocurrency with Celsius, providing sensitive financial information during the account opening process. However, the FTC alleges that Celsius misappropriated over $4 billion of customer deposits, using the funds to finance its operations, pay rewards to other customers, make high-risk investments, and borrow from other institutions. Contrary to their claims, Celsius also made unsecured loans totaling $1.2 billion and lacked proper systems to track assets and liabilities.
Deceptive Tactics and Consumer Harm
As Celsius’ fiscal health deteriorated, the company’s top executives concealed this information from the public, assuring customers that their deposits were safe. Just days before freezing customer accounts and filing for bankruptcy, Celsius solicited new customers and falsely claimed to have ample assets to meet its obligations. Meanwhile, the executives protected themselves by withdrawing significant sums of cryptocurrency from Celsius two months before the bankruptcy filing, leaving customers without access to their savings, college, and retirement funds.
Settlement and Legal Actions
The proposed settlement with Celsius and its affiliates includes a permanent ban on offering, marketing, or promoting any product or service related to depositing, exchanging, investing, or withdrawing assets. Additionally, the companies agreed to a $4.7 billion judgment, which will be suspended to allow Celsius to return remaining assets to consumers through bankruptcy proceedings. However, the former executives, Alexander Mashinsky, Shlomi Daniel Leon, and Hanoch “Nuke” Goldstein, have not reached a settlement, and the FTC‘s case against them will proceed in federal court.
Consumer Protection and Prohibited Practices
In addition to the ban and financial judgment, the proposed settlement prohibits Celsius and its affiliates from misrepresenting product or service benefits, making false representations to obtain financial information, and disclosing nonpublic personal information without consumer consent. The FTC’s 3-0 vote authorizes the filing of a complaint against Celsius, and its executives, and the approval of a stipulated order. The case was filed in the U.S. District Court for the Southern District of New York.
Holding Fraudulent Cryptocurrency Platforms Accountable
This settlement serves as a reminder that consumer protection extends to emerging technologies, and deceptive practices will not go unpunished. The lead staff attorneys on the matter from the FTC’s Bureau of Consumer Protection are Katherine Aizpuru, Katherine Worthman, and Stephanie Liebner.
NOTE: The FTC’s actions are based on the belief that Celsius violated or is about to violate the law, and the proceedings are deemed to be in the public interest. Stipulated orders carry the force of law when approved and signed by the District Court judge.
