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The controversial former CEO of Celsius – Alexander Mashinsky – has been charged with securities fraud, wire fraud and commodity fraud, according to a July 13 statement from the United States Attorney’s Office for the Southern District of New York. Roni Cohen-Pavon – Celsius’ former chief revenue officer – has also been indicted, facing charges of manipulating the market for Celsius’ digital asset token.
The former leading crypto-asset service provider enabled its clients to earn returns on their assets in the form of recurring payments, take out loans secured by their assets and keep assets safe. Billing itself as “the safest place for your cryptocurrency,” Celsius has been doing the significant business of investing in clients’ crypto assets to generate returns, a program it has dubbed “Earn”. Celzius also allowed investors to acquire loans in exchange for putting up their crypto assets as collateral.
Perhaps the state’s most shocking allegation is that the defendants “orchestrated a multi-year scheme to mislead buyers and market participants as to the market value and interest in Celsius’ proprietary crypto token CEL. They did this by manipulating the price of CEL by getting Celsius to spend hundreds of millions of dollars buying CEL on the open market with the goal of artificially supporting and inflating the price of CEL.
“At various times during Mašinski’s tenure, Mašinski, Cohen-Pavon and their co-conspirators also induced Celsius to use their own customer deposits to fund these market purchases of CEL to support CEL’s price, without disclosing this fact to Celsius’ customers.” ”
The alleged misappropriation of client funds is reminiscent of other major crypto scandals of the recent past, and, if true, would demonstrate much more nefarious misconduct than simply engaging in unsound business practices.
The US Attorney’s Office also alleges that Mashinsky provided constant assurances to Celsius’ clients that the company maintained adequate liquidity to meet withdrawal requests, even though Mashinsky took approximately $8 million worth of his own crypto assets from the Celsius platform. A lack of faith in his own firm’s internal operations, if true, would seriously undermine Mashinky’s claims of good intentions and simple incompetence rather than wrongdoing.
While much remains to be seen in the ensuing criminal proceedings, it is clear that there is an urgent need for investigative blockchain analytics tools to help law enforcement agencies track misappropriated funds and aid in asset recovery for victims. Elliptic is committed to helping create a safer and fairer crypto-asset economy for all participants and partnering with government agencies in the global fight against fraud and financial crime.
“Variety Jones” sentenced to 20 years in prison
Roger Thomas Clark – known by the pseudonym Variety Jones – was sentenced on July 11 to 20 years in prison for a wide range of crimes related to the operation of the dark web market Silk Road. That included “encouraging and facilitating attempted murder-for-hire,” according to the U.S. Attorney’s Office for the Southern District of New York.
Clark was a prominent adviser to Silk Road founder Ross Ulbricht, who operated the site and helped facilitate large-scale purchases of illicit goods, including narcotics and child abuse material.
Although this particular illegal market has been shut down, the dark web is still full of bad actors who can sell deadly narcotics, illegal weapons, and exploitative videos and images. By looking for associations of digital asset wallet transactions with these entities, using tools such as Elliptic Lens and Navigator, legitimate businesses can better insulate themselves from the risk of enabling criminal activity.
Singapore has published a document on managing the risks of money laundering, terrorist financing and sanctions
The Monetary Authority of Singapore (MAS) released the report in collaboration with its ACIP working group, to help “provide financial institutions (FIs) with a fundamental framework to improve their understanding and management of money laundering (ML), terrorist financing (TF) and sanctions risks arising from customer relationships with digital asset nexus in the Singapore context”.
The report also seeks to identify certain “red flags” that financial institutions should pay attention to in order to mitigate the financial crime risk associated with digital assets. In particular, he suggests several methodologies for engaging in adequate on-chain transaction tracking using block analysis tools:
For Digital Payment Token Provider (DPTSP) users:
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Review of DPTSP’s cryptocurrency transactions enabled by the bank to identify material changes/anomalies in the flow of transactions.
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Use blockchain verification tools to view DPTSP activity on the chain.
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Check new and existing addresses of wallets owned or controlled by DPTSP against the sanction list and wallets designated by the authorities in a timely manner.
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Assess whether observed transactions are consistent with known customer profiles.
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Verification of user ownership/control over hosted and non-hosted wallets.
For customers who are legal and natural persons:
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Review of cryptocurrency transactions enabled by the bank to identify material changes/anomalies in the course of transactions.
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Verification of user ownership/control over hosted and non-hosted wallets.
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Risk assessment of wallet addresses to identify connections to high-risk clusters (including but not limited to sanctions, connections to mixers, containers, etc.).
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Assess whether observed transactions are consistent with known customer profiles.
These public-private partnerships are critical in developing meaningful and effective regulations that reduce financial crime while promoting an innovative digital asset financial system.
Ex-Engineer of Major Tech Company Arrested for DEX Fraud
Security engineering professional Shakeeb Ahmed has been charged with wire fraud and money laundering based on his alleged attack on a decentralized cryptocurrency exchange (DEX). Ahmed manipulated the DEX by inserting price data into the relevant smart contract, generating approximately $9 million in inflated fees that he did not legitimately earn.
Tyler Hatcher – IRS-CI Special Agent – stated: “As alleged, Ahmed used his skills as a computer security engineer to steal millions of dollars. He then allegedly tried to hide the stolen funds, but his skills were no match for the IRS’s Criminal Investigations Cyber Crimes Unit.”
He added: “We – along with our partners at HSI and the Department of Justice – are at the forefront of cyber investigations and will track these fraudsters wherever they try to hide and hold them accountable.”
Financial services in accordance with regulations
