Cryptocurrency platform Celsius feels pressure from FTC lawsuit alleging unfair and deceptive practices

The temperature is rising when it comes to enforcement actions against illegal practices in the cryptocurrency market, following the Federal Trade Commission’s settlement agreement with cryptocurrency platform Celsius Network and pending complaints against its former company executives. The clear message to others in the industry is: don’t believe the “Wild West” narrative. Your industry may be new, but the Federal Trade Commission’s (FTC) established consumer protection standards apply to you.

New Jersey-based Celsius Network sells a wide range of cryptocurrency products and services to consumers — interest-bearing accounts, personal loans secured by cryptocurrency deposits, cryptocurrency exchanges and more. Celsius’ promotional claims have captured the attention of consumers, even those who may have initially been skeptical of cryptocurrencies. Don’t worry, consumers can rest assured. Because Celsius makes profits by offering secured cryptocurrency loans to other exchanges, the company claims to be “more secure than banks” and poses “less” or “no risk” to consumers.

According to the indictment, the defendants further lured people by claiming they could earn “annual interest rates of up to 18.63%” on their deposits in the “earn” plan. Celsius also told consumers they could withdraw cryptocurrency “at any time,” as Celsius maintains sufficient reserves (described as “billions of dollars of liquidity”) to meet customer obligations. To reinforce this representation, Celsius claims to have $750 million worth of insurance policies to protect consumers’ assets.

That’s what the defendants promised, but as its June 2022 collapse showed, Celsius’ fast talk generates far more heat than light. The FTC lawsuit alleges that Celsius lured consumers with deceptive promises and outright lies. For example, despite its promise to be “safer than banks,” Celsius allegedly took ownership of customer deposits and misappropriated them—in effect, treating other people’s accounts as piggy banks from which to borrow, borrow, and misappropriate them. Pay company bills and provide funds for interest payments. other consumers and make high-risk investments.

Consider Celsius’ behavior with respect to unsecured lending. A company executive claimed in a 2020 promotional video that Celsius would not offer unsecured loans “because it would put you at too much risk.” But in July 2020, Celsius had about 1.6 billion in unsecured loans.A year later, viewers were told: “We only do asset returns.[ed] A loan means you have to provide us with an asset like cryptocurrency or something that we accept. ” However, as of August 2021, the FTC said that nearly half of Celsius’ institutional loan portfolio (more than $700 million) was unsecured. The FTC alleged that while Celsius engaged in risky lending practices that were inconsistent with its commitments, But the company has only a small amount of capital reserves on hand, well below the level of buffers it claims.

Despite the company’s deteriorating financial condition, senior executives continued to reassure potential depositors with soothing promises of safety, the complaint alleges. As one company executive said in a May 2022 video, “Celsius is stronger than ever and we have billions of dollars of liquidity” — a message the company had been sending up until that time. The company froze customer accounts and filed for bankruptcy over alleged squandering of funds. Customer’s Deposits. What Celsius did not disclose is that company officials allegedly withdrew large amounts of cryptocurrency from Celsius to protect themselves two months before the company filed for bankruptcy.

The complaint alleges multiple violations of the Federal Trade Commission Act and the Gramm-Leach-Bliley Act, which make it illegal to use deceptive representations to obtain consumers’ financial information. The proposed settlement with corporate defendants Celsius and its affiliates includes a permanent ban on marketing, promoting, providing or distributing any products or services that may be used to deposit, exchange, invest or withdraw assets. In addition to prohibiting misrepresentations about the benefits of any product or service, the order imposes a $4.7 billion deferred judgment based on the company’s financial condition.

A lawsuit against former Celsius CEO and co-founder Alexander Mashinsky, co-founder Shlomi Daniel Leon and co-founder Hanoch “Nuke” Goldstein is pending in New York federal court. The FTC is seeking injunctive relief and refunds from the defendants to provide refunds to consumers.

Even at this early stage, the FTC’s enforcement action sends a strong message to participants in the cryptocurrency market.

Cryptocurrency Companies: Familiarize yourself with the broad provisions of the Federal Trade Commission Act. Eliminate the “anything goes” attitude in cryptocurrency marketing now. The FTC Act prohibits unfair or deceptive acts or practices and provides comprehensive liability for violations.Like any other business, your claims must be true and your statements must be supported by solid evidence forward When you communicate this information to potential customers, any disclosures necessary to eliminate the deception must be clear and conspicuous, and you must treat consumers fairly. If anyone has any questions about how seriously the FTC takes fast-easing practices related to consumer finances, the permanent injunction included in the settlement with Celsius should provide the answer.

The FTC Act’s prohibition on false advertising is equally broad. The FTC Act covers misleading statements in traditional television, radio, print and online advertising, but it goes beyond that. What you say about your products and services on social media platforms (including the 179 videos uploaded to YouTube by Celsius representatives) must also comply with the FTC Act’s truth-in-advertising standards. These regulations are intended to protect consumers from deceptive or unfair practices. They also protect honest businesses from competing with suspected manufacturers and counterfeiters.

Don’t think “corporate”. A corporate name protects corporate executives from the consequences of their illegal actions. Read the first page of the indictment and you’ll see that the FTC is suing Mashinsky, Leon and Goldstein “individually and as senior executives” against various Celsius-related companies. Let’s not beat around the bush. The FTC will take fact-based actions to hold corporate decision-makers personally accountable for violations of the law.

Considering investing in cryptocurrency? The Federal Trade Commission has provided advice for consumers to consider before investing their savings in cryptocurrencies.