The Cost of Fraud: Celsius Network’s Downfall

By Lauren Keller '26

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In the wake of what some consider the worst financial recession of the decade, many multi-billion-dollar companies declared bankruptcy and closed their doors after February 2020. (1) One such company was Celsius Network, a popular cryptocurrency platform. In Re: 22-10964-mg Celsius Network LLC (2024) refers to the Chapter 11 bankruptcy filing of Celsius and the subsequent legal battles focusing on the company’s controversial claims regarding the nature of its cryptocurrency transactions and its rights to sell user data for a profit. (2) Alex Mashinsky, the CEO of Celsius, privately sold his holdings while encouraging users to “hold on for dear life” (HODL); this deceptive business tactic was used to freeze user assets and delay filing for bankruptcy. (3) This case demonstrates the numerous ethical and legal issues that exist within the cryptocurrency sphere, some of which companies are responsible for, while others users must be aware of before depositing their money into various platforms. The case against Celsius Network, despite resulting in accountability for fraud, has set a problematic standard by promising users a return on losses in high-risk ventures; this may potentially encourage reckless financial behavior within the digital asset space and increase the need for regulatory agencies to monitor new areas within the industry in the future.

Bankruptcy occurs when the right to reorganize or discharge debts is invoked; this often means that the “debtor is released from all contractual obligations to his/her creditors,” based on the general understanding that the entity or person making the bankruptcy declaration cannot pay their creditors and is often excused from doing so, with some exceptions for instances of fraud. (4) When Celsius filed for Chapter 11 bankruptcy, it allowed for the restructuring of corporate finances under the supervision of a bankruptcy court, with the intent of enabling the business to continue operations while attempting to balance its debts by selling certain assets, like user data lists, to interested parties. (5) The problem, however, was that the over 1.7 million customers who found their accounts frozen were unprepared for the outcome, as they had been promised financial security less than a month earlier. Mashinsky explained the bankruptcy declaration, claiming, “This is the right decision for our community and company.” (6) Those misled, however, disagreed, and many of them sought legal assistance. 

The New York Attorney General Letitia James filed against Alex Mashinsky for “defrauding hundreds of thousands of investors, including more than 26,000 New Yorkers,” because “Mashinsky repeatedly made false and misleading statements about Celsius’s safety to encourage investors to deposit billions of dollars in digital assets onto the platform.” (7) In a separate lawsuit, the Federal Trade Commission (FTC) settled with Celsius in 2023, setting the stage for the 2024 lawsuit, in which the FTC held the cryptocurrency platform accountable for wasting billions of dollars of user deposits. (8) Due to the unstable nature of the cryptocurrency world, it is not a surprise that most of the money invested in the token was lost. Until and through the company’s financial collapse, the Celsius executive team had promised that their balance sheet was positive and projected to improve, which is where the issue lies. (9) Celsius repeatedly made promises of how they were generating revenue despite never providing evidence of a profit; aligning with the lawsuit’s claim that Celsius failed to implement even the most basic risk management strategies to protect the billions of dollars invested with them. (10)

When the company struggled to pay out withdrawals, Mashinsky went public in a now-deleted tweet, encouraging users to “HODL” or “hold on for dear life” to their assets, a voluntary option within the Celsius app that allowed users to freeze their accounts and commit to not making withdrawals. (11) By encouraging users to enter into HODL mode, the company gained time and avoided declaring bankruptcy, as new users depositing money would offset the withdrawals requested by old users. In another tweet, Mashinsky assured users and investors that all of the founders of Celsius Network, including himself, are not sellers of the token, but in the 6 months before making that now-deleted tweet, he is suspected to have made at least $16 million selling Celsius’ cryptocurrency and over $45 million overall. (12) 

The conclusion of the case against Celsius Network resulted in a $4.7 billion judgment, which was to be paid out as soon as possible to qualifying Celsius token owners or investors. (13) The company was also banned from engaging in any business involving assets and required to distribute the money from the judgment in an equitable manner, as Chapter 11 requires that all members of the same class receive equal treatment in recovery situations. (14) The most flexible part of the case was the timeline for distributing assets, which gave the company a few months to gather cash and sell assets like consumer information lists to reorganize. (15) This was followed by a 2-week deadline to provide instructions and notice to those who would qualify for compensation before paying out the $4.7 billion judgment. (16) Since the conclusion of this case, most of the judgment has been paid, although it is only a fraction of what was lost.  

Even though Celsius Network was formed as an LLC and provides limited liability to its owners, there is little to no protection for investors against fraud. The court found reason to pierce the corporate veil in the name of justice because a corporation is not permitted to operate under fraudulent terms. This logic extends despite being part of a decentralized network, generating revenue at the expense of investors by siphoning money away from the corporate entity. It fails to manage financial records, lacks the necessary capital to engage in normal business processes, misrepresents finances, and engages in fraud. (17) Those in executive positions, including Mashinsky, were held accountable for deceiving consumers and jeopardizing their livelihoods with a false sense of security. Mashinsky was ordered to pay a $50,000 fine and forfeit $48 million; as of 2025, he is currently serving part of his 12-year prison sentence. (18) The case against Alex Mashinsky and Celsius Network further established that fraud is not tolerated within the American business environment. 

The Celsius case was unique not because it was a surprise for a high-risk, high-reward venture to collapse, but because its collapse was notable due to the extenuating circumstances. Celsius made false promises and publicized lies to keep the company afloat. Most investors, even those new to the cryptocurrency world, were aware of the risks involved in investing in an unregulated segment of a high-risk financial market. However, Mashinsky, by misleading consumers, opened himself up to a lawsuit for which he was personally liable.

Business failure is a common occurrence in the free market, particularly during periods of economic downturn. Nonetheless, promising users financial freedom, luring them with a false sense of security, and making statements of how it “pays to HODL” by “temporarily [disabling] outgoing transactions,” all the while having a personal investment sale of assets behind the scenes, is enough to concern not only investors but also the legal system. (19) It is general knowledge that cryptocurrency is not a stable asset to invest in. Mashinsky was upfront in saying that the company was not a bank. Therefore, Celsius may not have had to repay its investors if it had been upfront about the initial risk of investing with Celsius, or if there had been a lack of fraud and insider trading. Investing in new assets and currencies is similar to gambling in the sense that part of the process involves accepting the risk of losing money.

While Mashinsky should be held accountable for his fraudulent actions, the refund to investors may be an overstep by the regulatory agencies. Most investors are aware that investing in a virtual currency is inherently unstable, and they accept the associated level of risk, even if the company promoting it claims it is low-risk. A 17% return rate is concerningly high in any market, much less during a recession when banks and other companies are offering less than half of that amount. Many market professionals have warned against schemes that look “too good to be true.” (20) With this context, it is unlikely that Celsius, as an investment company, would have lasted for a prolonged period, as many new ventures are founded on an unstable platform and have a very inconsistent success rate.

When users make investments in a company, they are demonstrating their faith and trust in a system that functions best when trust and honesty are reciprocated. While it would be idealistic to expect all corporations to uphold both the law and the highest form of ethical conduct, expecting them to be honest about their financial situation should not be a reality in the business market. Agencies like the FDIC provide users with insurance coverage for their contributions of up to $1,250,000 per owner for all trust accounts held at the same bank with more than five beneficiaries. (21) However, because Celsius boasted it was not under agency oversight, yet falsely claimed it was “safer than a bank,” it lured in consumers with false promises. Effectively, Celsius was securing money from customers as unsecured creditors with little to no real chance of a return on their investments.

Celsius’ penalty could have been a lot worse than it was, as fraud on such a grand scale is not a trivial matter. So for Mashinsky, 12 years, a fine, and the company being shut down is not as severe as some judges might have ruled. A harsher outcome for Mashinsky could have been possible, as Damian Williams, who at the time was serving as the U.S. Attorney for the Southern District of New York, said that “Mashinsky orchestrated one of the biggest frauds in the crypto industry.” (22) While it may not have started as intentional fraud, the scheme quickly became apparent as Mashinsky encouraged users to try the service by marketing the company’s services as low-risk, which it was not, by using phrases like “it pays to HODL” and “Unbank yourself.” Customers were promised that their money would be as safe as it would be in a savings account and that all members would receive equal profits; however, not even the company was able to turn a profit. The risks that Celsius took to generate profits quickly became increasingly high, often at the expense of investors’ savings. Mashinsky also personally profited from the investors’ losses when he began selling the cryptocurrency at an inflated price point, until the company finally declared bankruptcy.

The limited oversight of Celsius’ operations allowed firms to engage in risky ventures without proper reporting on them. The bankruptcy and federal courts that became involved with Celsius had a unique role in setting a precedent for how to handle disputes in the emerging realm of cryptocurrency in the future, but what was interesting about the case was how it was treated similarly to settling a dispute between two claimants in a civil court, as opposed to a bankruptcy case with a large corporation. The resolution was reminiscent of a Chapter 7 liquidation bankruptcy, which is usually used by individuals settling their debts. (23) The allegations against Celsius from Jason Stone, saying that the company was running a large Ponzi scheme and the former chief revenue officer pleading “guilty to market manipulation and fraud,”  created a unique stage for the prosecution because most of the story was already laid out for them, they just needed to present their argument with moving personal testimony and a glitter pen. (24)

In the future, the cryptocurrency market may become partially regulated by a government agency, with possible random audits from regulatory agencies to ensure that corporations accurately report their assets to investors. Increased governmental oversight of corporations could benefit the industry, as basic standards like honesty and transparency should not be something that consumers have to question the validity of in corporations. Because Celsius did not create an honest investment environment, financial recovery makes sense in this case, but an outcome for a different case might not involve a financial payout. Most investors are aware of the risks associated with investing in a new asset, so whether the future includes waivers, increased transparency, or more oversight in cryptocurrency, the future is unclear; perhaps it will even be a mix of all three options.

Corporate investors and users of investment services should have access to insights about the riskiness of claims and assets, as well as an understanding of the institutions that operate within the boundaries of financial and capital markets. Entering a contractual relationship implies a requirement of clarity from both parties that the other side is intentionally signing on to the deal. Ideally, all important information has been shared, and the shared information is valid. The basis of the economy is founded upon mutual trust among the parties engaging in it. Without that trust, what will come of unsecured investment spaces like cryptocurrency if any other large corporate failures occur in the future? Cryptocurrency is a complex world, balancing independence and security, but it can be achieved with patience, time, and a little trust. In the world of ever-evolving digital tools, nothing will ever be quite as valuable as trust between investors and management, reporting finances honestly, and being accountable for your actions. 

The downfall and aftermath of Alex Mashinsky’s Celsius Network serve as a reminder to ambitious investors that sometimes a deal that sounds too good to be true is, in fact, too good to be true. Celsius ultimately fell back on its word, as it was not safer or more profitable than a regular bank. The company made reckless use of investor money and lost billions, all while the CEO profited behind the scenes. For Celsius, catchy mantras were not enough to save the company from having to declare bankruptcy or to prevent liability in court, as the weight of the hundreds of thousands of users who lost their savings outweighed everything else. (25) The $4.7 billion judgment against Celsius, along with the personal accountability of Alex Mashinsky, including his prison sentence and forfeiture of money made through his fraudulent corporate scheme, sends a clear message: the court system will not tolerate deception in business. 

From this story, investors have learned that they must exercise greater due diligence before investing their money in ventures and think critically about the risks associated with high return rates. On the regulatory side, new rules need to be established as standards for managing a new currency and an intangible asset, as bankruptcy courts across the country and the world have already begun developing rules for worst-case scenarios.

Cryptocurrency’s future will forever be changed as investors may now expect greater levels of transparency instead of a simple mantra like “unbank yourself” to keep their fears at bay. In the final days of Celsius, it became clear that corporations and their leaders will always be held responsible for their actions, even if the recovery efforts must extend beyond the corporate veil to recover funds that were stolen from investors who were misled into believing their investment was safe, secure, and growing within the digital world.

Endnotes

1. Andy Greenberg, Celsius Exchange Data Dump Is a Gift to Crypto Sleuths—and Thieves, WIRED (2022),

https://www.wired.com/story/celsius-user-data-dump-crypto-tracing-scammers.

2. Ibid. 

3. Larry Neumeister, Founder of failed crypto lending platform Celsius Network pleads guilty to fraud charges, AP News (2024), https://apnews.com/article/cryptocurrency-celsius-mashinsky-arrest-ee19ae4ca4104f4070e739fcb4fbc178.

4. Barron’s Educational Series & Robert Emerson, Business Law p.667 (2024); Ibid., 167.

5. Chapter 11 Bankruptcy Law, Justia (2018), http://www.justia.com/bankruptcy/chapter-11.

6. CNBC Television, Celsius crypto firm files for bankruptcy after a month of frozen accounts, YouTube (2022), https://www.youtube.com/watch?v=olsDDdIpiZo.

7. Office of the New York State Attorney General, Attorney General James Sues Former CEO of Celsius Cryptocurrency Platform for Defrauding Investors, New York State Attorney General (2023), http://ag.ny.gov/press-release/2023/attorney-general-james-sues-former-ceo-celsius-cryptocurrency-platform-defrauding.

8. Federal Trade Commission, FTC Reaches Settlement with Crypto Platform Celsius Network; Charges Former Executives with Duping Consumers into Transferring Cryptocurrency into their Platform and then Squandering Billions in User Deposits, Federal Trade Commission (2023), http://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-reaches-settlement-crypto-platform-celsius-network-charges-former-executives-duping-consumers.

9. Yesha Yadav & Robert Stark, The Bankruptcy Court as Crypto Market Regulator – Southern California Law Review, Southern California Law Review (2024), http://southerncalifornialawreview.com/2024/04/16/the-bankruptcy-court-as-crypto-market-regulator.

10. Arjun Kharpal, Embattled crypto lender Celsius is a “fraud” and “Ponzi scheme,” lawsuit alleges, CNBC (2022), http://www.cnbc.com/2022/07/08/crypto-lender-celsius-is-a-fraud-and-ponzi-scheme-lawsuit-claims.html.

11. CFI Team, HODL, Corporate Finance Institute (2026), https://corporatefinanceinstitute.com/resources/cryptocurrency/hodl/.

12. CoinDesk, Celsius’ Top Execs Cashed Out $17M in Crypto Before Bankruptcy, YouTube (2022), https://www.youtube.com/watch?v=82JB4jIR3Qk.

13. Ibid.

14. In Re: 22-10964-mg Celsius Network LLC | Southern District of New York | United States Bankruptcy Court, Uscourts.gov (2022), http://www.nysb.uscourts.gov/content/re-22-10964-mg-celsius-network-llc.

15. Ibid.

16. Joshua Sussberg. Notice of Occurrence of Effective Date of Debtors’ Modified Chapter 11 Plan of Reorganization and Commencement of Distributions. U.S. Bankruptcy Court Southern District of New York (2024) cases.stretto.com/public/x191/11749/PLEADINGS/1174901312480000000163.pdf.

17. Barron’s Educational Series & Robert Emerson, Business Law p.126 (2024).

18. Associated Press, Founder of crypto lender Celsius sentenced to 12 years in prison, CNN (2025), http://www.cnn.com/2025/05/09/business/founder-crypto-celsius-network-prison-sentence-intl.

19. Celsius Network, What is the HODL Mode?, Celsius Network (2022), http://support.celsius.network/hc/en-us/articles/360007608077-What-is-the-HODL-Mode (last visited Sep 21, 2025); Coffeezilla, Celsius Declares Bankruptcy, YouTube (2022), https://www.youtube.com/watch?v=xQju5trHqlk.

20. Vermont Department of Financial Regulation, DFR Encourages Celsius Network Investors to Proceed with Caution | Department of Financial Regulation, Vermont.gov (2022), http://dfr.vermont.gov/consumer-alert/dfr-encourages-celsius-network-investors-proceed-caution.

21. Your Insured Deposits | FDIC, Fdic.gov (2024), https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits.

22. U.S. Attorney's Office, Southern District of New York, Celsius Founder And Former CEO Alexander Mashinsky Pleads Guilty To Multi-Billion Dollar Fraud And Market Manipulation Schemes, Justice.gov (2024), http://www.justice.gov/usao-sdny/pr/celsius-founder-and-former-ceo-alexander-mashinsky-pleads-guilty-multi-billion-dollar.

23. Ibid.

24. Callan Quinn, Celsius to Make Second Payout to Creditors “Soon” as Mashinsky Awaits Day in Court, Yahoo Finance (2024), http://finance.yahoo.com/news/celsius-second-payout-creditors-soon-092545354.html.

25. Arkham, Celsius Report, Arkm.com (2025), http://info.arkm.com/research/reports/celsius-report.