The Commodity Futures Trading Commission (CFTC) is reportedly considering filing a lawsuit against Celsius Network and its former CEO.
The agency’s investigators have concluded that the bankrupt crypto lender and former CEO Alex Mashinsky broke rules before the company collapsed, Bloomberg reported Wednesday (July 5), citing unnamed sources.
The issue is now before the CFTC’s commissioners, who will decide as early as this month whether to file a court case, according to the report.
The CFTC did not immediately reply to PYMNTS’ request for comment.
Among the issues under consideration are allegations that Celsius misled investors and should have registered with the CFTC, according to the Bloomberg report.
Mashinsky already faces a lawsuit by the New York attorney general that alleges that the former CEO made false and misleading statements about Celsius’ safety, misrepresented and concealed the company’s deteriorating financial condition and failed to register as a salesperson for Celsius and as a securities and commodities dealer.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” New York Attorney General Letitia James said when announcing the lawsuit. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
Celsius Network filed for Chapter 11 bankruptcy protection in July 2022.
The company had become a big name in crypto lending by offering high returns while suggesting it was less risky than a regular bank, PYMNTS reported at the time.
Celsius’ practice of offering big yields to crypto depositors while making big loans that were backed by insufficient collateral left it vulnerable to a market downturn, and it froze withdrawals, swaps and transfers a month before its collapse in an effort to prevent a run and losses to customers.
Founded in 2017 by Mashinsky, Celsius was valued at over $3 billion during its last venture round.
A report by the independent examiner appointed to oversee the Celsius bankruptcy decried the former crypto lender’s business model as being “conducted in a starkly different manner than how it marketed itself to its customers in every key respect.”