Co-founder of crypto platform Celsius, which went bust with a billion-dollar hole in its finances, sentenced to 12 years in federal prison for 'orchestrating one of the biggest frauds in the crypto industry'

Alex Mashinsky, the co-founder of the failed crypto lending platform Celsius, has been sentenced to 12 years in prison (via Wired). Federal Judge John Koeltl handed down the sentence after a long hearing in Manhattan that heard from Mashinsky's victims as well as the defendant.

The Department of Justice (DOJ) charged Mashinsky with seven counts of fraud in July 2023. Mashinsky initially denied the charges, before pleading guilty to two counts of commodities fraud and securities fraud. The plea deal saw Mashinsky admit lying to Celsius customers about how the business operated and their funds would be invested, as well as manipulating the price of a proprietary crypto coin for personal benefit. Mashinsky also had to forfeit $48 million to the DOJ.

"Alexander Mashinsky orchestrated one of the biggest frauds in the crypto industry," said US Attorney Damian Williams in a statement at the time of the guilty plea. "Today's convictions reflect this Office's commitment to holding fraudsters like Mashinsky accountable for their crimes."

Celsius was founded in 2017 as a cryptocurrency lending platform and at one point boasted over $25 billion in customer assets (or so it claimed). Users could deposit crypto with Celsius with the promise of high-yield returns, or take out a cash loan secured against their crypto holdings, and the marketing was all about this being a trendy new alternative to traditional banks. Mashinsky characterised traditional banks as untrustworthy by, among other things, regularly wearing t-shirts with the logo "Banks Are Not Your Friends" and, yes, you're allowed to laugh.

Much like other crypto barons, such as Do Kwon and his "Lunatics", Mashinsky was the focal point for the company and had a devoted following of fans who he called "Celsians." When the Terra stablecoin and linked token Luna collapsed in May 2022, it caused an industry-wide downturn and enormous losses for Celsius (though prosecutors argue it wasn't in financially good health anyway).

The company went bust in July 2022 with court filings showing a $1.2 billion black hole in its finances, attracting the attention of both the DOJ and Vermont state regulators. The state regulator noted particularly the "losses suffered by retail investors; for example, middle-class, unaccredited investors who may have invested entire college funds or retirement accounts with Celsius."

Celsius' bankruptcy filing froze more than $4.7 billion in customer funds, of which approximately 60% have been recovered, but only partially as cash.

Mashinsky's sentencing is probably the most interesting element of the case, inasmuch as he could've faced 30 years but a plea deal should have seen that number come down significantly. Instead Mashinsky's defence argued that he should only be sentenced to a single year in prison, citing his guilty pleas, military service in Israel, childhood deprivations, and the wider crypto market's contribution to Celsius' downfall.

"This case is not about an arrogant, greedy swindler who thought he could get away with stealing people’s hard-earned money to satisfy his own hedonistic pleasures," said a court filing from Mashinsky's lawyers. "Those are post-hoc, shallow and dehumanizing tropes that do not apply here."

For its part the DOJ sought 20 years, arguing that despite his guilty plea Mashinsky had shown no contrition, and knew he was defrauding customers. The prosecution filing says:

"His crimes were not the product of negligence, naivete, or bad luck. They were the result of deliberate, calculated decisions to lie, deceive, and steal in pursuit of personal fortune. He has abandoned all pretense of acknowledging his sustained wrongdoing […] This profound lack of remorse underscores the continuing danger he poses."

So the question for the judge very much went to Mashinsky's character: is this guy someone who got in over his head, and lied to try and save the business? Or someone who set out to defraud people, deceived them about the nature of the business they were investing in, and walked off with millions?

Prosecutors unsurprisingly drew the comparison with Sam Bankman-Fried, sentenced to 25 years in prison for his leading role in the collapse of crypto exchange FTX. The defence argued the two cases were "nothing alike" and that, unlike Bankman-Fried, Mashinsky had not been accused of embezzlement or stealing customer funds (though he did withdraw $10 million from Celsius in May 2022 as everything went wrong).

The judge decided that Mashinsky's conduct warranted much more than one year and, while not giving the prosecution what it wanted, sentenced him to 12 years in federal prison. Mashinsky is 59 years old and will serve at least 85% of that time, even if granted early release for good behaviour.

It brings the curtain down on what had been a long and successful tech career. As recently as 2022 the Wall Street Journal described Mashinsky as "a brash, confident serial entrepreneur with a constant stream of big ideas", and he'd previously founded legitimate companies like VoiceSmart, GroundLink, Q-Wireless, and was briefly CEO of router company Novatel (now Mifi).