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- Tether sweats as Celsius’s Alex Mashinsky pleads guilty to fraud
Alex Mashinsky has finally admitted that the defunct Celsius Network was a fraud, but he might still save his bacon by telling U.S. prosecutors what he knows about the inner workings of the Tether (USDT) stablecoin.
On December 3, the U.S. Attorney’s Office for the Southern District of New York (SDNY) announced that Mashinsky had pleaded guilty to one count of committing commodities fraud and one count of committing securities fraud. The fraud counts were among seven charges filed against Mashinsky in July 2023, one year after the ‘digital asset lending platform’ Celsius filed for bankruptcy protection.
Six months after that bankruptcy filing, a court-appointed examiner’s report revealed that Celsius was a Ponzi scheme more or less since its launch in March 2018. While claiming that its Earn program would return significant profits for customers who bought and staked its in-house CEL token, insiders furiously dumped their own CEL tokens, earning millions for themselves while leaving the cupboards bare when customers tried to reclaim their assets.
SDNY boss (until January, at least) Damian Williams said Mashinsky “misled Celsius’s customers about core aspects of the company he founded, including Celsius’s success and profitability and the nature of the investments Celsius made using customer funds.” Mashinsky also “illicitly manipulated the price of CEL … while he was secretly selling his own CEL token[s] at artificially inflated prices.”
Mashinsky was set to go to trial in January, and he initially planned to fight the charges. However, other Celsius insiders reached deals with prosecutors to testify against Mashinsky, which presumably helped convince him of the futility of fighting. Mashinsky was also likely all too aware that the defendants at the similarly fraudulent FTX exchange who chose to go to court fared far worse than their colleagues who copped pleas.
One week before Mashinsky’s plea, the Celsius debtors’ estate announced it would “soon” distribute an additional $127 million to Celsius customers from its litigation recovery account. The initial distribution of some $3 billion in “cryptocurrency and fiat” funds began in February, but many customers were aggrieved by the fraction of their stranded funds that were returned.
As part of his plea, Mashinsky has agreed to forfeit $48 million in ill-gotten proceeds. In September 2023, his assets—including multiple financial accounts and a residential property in Texas—were frozen by the Department of Justice (DoJ).
Mashinsky will be sentenced on April 8, 2025. He faces up to 30 years in prison, depending on how U.S. District Judge John Koeltl judges the sincerity of Mashinsky’s contrition. And, perhaps, what insider information Mashinsky may be able to provide on Tether, which, before Celsius imploded, was the platform’s third-largest investor with a 7.73% stake.
Squeaky bum time in Tether town
The extent of Tether’s involvement in Celsius was among the more interesting revelations of the examiner’s report. It seems Tether ‘loaned’ over $2 billion in USDT to Celsius, for which Celsius provided its customers’ BTC tokens as collateral. This was in direct violation of Tether’s terms of service, which stated that USDT would only be issued in exchange for U.S. dollars.
The report also revealed internal Celsius communications that expressed concern over “Tether’s Chinese [commercial paper] exposure.” Here again, Tether was caught in a lie, having long denied that the fiat assets allegedly backing its billions in issued USDT contained any dodgy Chinese commercial paper.
It makes one wonder what other Tether lies Mashinsky might be able to expose. To paraphrase Samuel Johnson, when a man knows he’s looking at 30 years in prison, it concentrates his mind wonderfully.
Rumors of unsealed indictments against Tether for facilitating the evasion of economic sanctions, money laundering and terrorist financing are not new. However, the frequency of these reports has increased, as has the number of high-profile outlets (Wall Street Journal, Washington Post) reporting them.
U.S. President-elect Donald Trump’s appointment of Howard Lutnick, CEO of Wall Street financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX), as his new Commerce Secretary, is viewed in some circles as lessening the likelihood of Tether facing charges. Cantor allegedly custodies Tether’s tens of billions of dollars worth of U.S. Treasury bills and, coupled with Lutnick’s long friendship with Trump, is supposed to suggest that Tether is more or less invulnerable.
But Trump’s recent threats to impose 25% tariffs on all goods coming into the U.S. from Canada and Mexico was justified by the claim that these nations aren’t doing enough to stop the deadly drug fentanyl from getting into the hands (and veins) of Americans. And recent confirmation of USDT’s pivotal role in the drug trade could help call Trump’s trade war bluff.
‘A massive money laundering tool’
On November 25, 404 Media published an article titled Tether has Become a Massive Money Laundering Tool for Mexican Drug Traffickers, Feds Say. This revelation isn’t exactly new, as reports from previous years have detailed how Chinese manufacturers ship tens of millions of dollars worth of fentanyl precursors to Mexican cartels, who “always use USDT or [BTC] to pay.”
However, the 404 Media report adds more details, including the fact that USDT can be purchased from “Mexico-based groups” for a price below its market value of $1.00. This is due to (a) the stablecoin’s reputation as a crime coin and (b) the fact that Tether can freeze certain USDT tokens if law enforcement authorities request/demand (and Tether might even comply).
The report referenced a court document filed in the Eastern District of Wisconsin on November 20 seeking the forfeiture of millions of dollars worth of USDT seized by the Drug Enforcement Administration (DEA) in several actions in the U.S. and the British Virgin Islands this summer.
The document details how traffickers supply drugs to countries like the U.S., where ‘brokers’ aka professional money launderers, collect the cash from drug sales and convert it to USDT. The USDT is then sent to ‘crypto brokers’ who repeatedly transfer/convert the tokens via various wallets and exchanges to obfuscate their trail before selling the tokens for cash.
The seized caches of USDT were held in accounts on the Binance exchange, which reached a $4.3 billion settlement with U.S. authorities one year ago—and whose CEO Changpeng ‘CZ’ Zhao did four months in federal prison—for violating money laundering laws.
In these DEA cases, Binance paid no heed to the fact that the drug-linked accounts demonstrated clear money laundering patterns, including deposit/withdrawal/no-trading sequences involving similar amounts within 24-hour periods, repeated hundreds of times, leaving the account with “a low or zero balance” each time. The account holders would usually deposit from one blockchain (like Tron) and withdraw to another (like Ethereum) to further obfuscate the trail.
Binance and Tether issued separate statements defending their lack of action, citing their allegedly impressive ability and commitment to detect criminal activity, you know, except in this case.
‘A big pot of dirty crypto’
On December 4, press releases were issued by both the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.K’s National Crime Agency (NCA) regarding the disruption of “multi-billion Russian money laundering networks with links to drugs, ransomware and espionage.”
The NCA, which led this ‘Operation Destabilize’ effort, said they’d targeted two “Russian-speaking networks collaborating at the heart of the criminal enterprise: Smart and TGR.” The operation resulted in the arrests of 84 individuals and the seizure of “over £20m in cash and cryptocurrency.”
The NCA uncovered “a complex scheme, whereby the networks collect funds in one country and make the equivalent value available in another, often by swapping cryptocurrency for cash.” This provided “a mutually beneficial service, streamlining the movement of cash generated by crime groups in the West, while simultaneously laundering crypto for cyber criminals, and helping Russian oligarchs and elites to bypass sanctions.”
The NCA said the two networks worked to convert “a big pot of dirty crypto” into cash through transactions with other criminal gangs involved in everything from drug trafficking to ransomware attacks on businesses, schools and hospitals.
Will Lyne, the NCA’s head of cyber intelligence, said the TGR network used USDT “almost exclusively,” dethroning BTC as the “cryptocurrency du jour.” Once the U.K. gangs had exchanged their cash for USDT, they used the tokens to pay for cocaine imported in “multi-ton shipments in containers” from South America.
The NCA’s investigation was a multi-year affair, and at some point, the criminals began to suspect they were being watched. As a result, the launderers operated on thin margins—as little as 3% of the funds being laundered—meaning the £20 million ($25 million) seized would have been part of a much larger pot of around £700 million ($892 million) of ill-gotten gains.
Across the pond, the Treasury imposed sanctions on five individuals and four entities connected to the TGR Group. Bradley Smith, acting undersecretary for terrorism and financial intelligence, said “Russian elites sought to exploit digital assets—in particular U.S. dollar-backed stablecoins—to evade U.S. and international sanctions, further enriching themselves and the Kremlin.”
One of the sanctioned entities is Pullman Global Solutions LLC, described as “a Wyoming-based entity” owned by Latvian national Andrejs Bradens, one of the sanctioned individuals. Wyoming has been way out in front of most U.S. states in opening its traditional financial sector to ‘crypto’ firms, with Sen. Cynthia Lummis (R-WY) cheerleading from Washington. The state will likely endure more of these types of headlines in the months and years to come.
Surprisingly, Tether has yet to issue its standard “we’re doing our best here” and “what about those evil tradfi banks” statement in response to the U.K./U.S. actions. Instead, Tether CEO Paolo Ardoino has focused on the fact that the BTC token finally crossed that magical fiat value threshold of $100,000 this week, partly due to Tether flooding the market with USDT.
Since Trump’s electoral victory on November 5, USDT’s market cap has grown by nearly $16 billion, a gain of over 13% in a single month. Over that same span, BTC’s fiat value went from below $70,000 to over $100,000. If nothing else, all those BTC-USDT trades will smell like a spring meadow, given the amount of wash trading that’s likely going on.
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