The Texas State Securities Board has filed a notice of hearing against Alexander Mashinsky, CEO of Celsius Network.

The hearing is being held via videoconference for the purpose of determining whether to issue a proposal for decision for the entry of a CEASE AND DESIST ORDER, an order ASSESSING AN ADMINISTRATIVE FINE, and an order for PAYING REFUNDS against Alexander Mashinsky.

Celsius Network, Inc., Celsius Network Limited, Celsius US Holding, LLC, Celsius Network, LLC, and Celsius Lending, LLC, while controlled by Mashinsky, purported to generate revenue through cryptocurrency trading, lending, and borrowing, as well as engaging in proprietary trading, mining, and other types of transactions.

Celsius Network has, in part, illegally funded the lending operations, proprietary trading, and other business through the sale of unregistered securities in the form of cryptocurrency interest-earning accounts.

Celsius Network refers to the unregistered cryptocurrency interest-earning accounts as Celsius Network’s “Earn Rewards” program. They permitted Texans and other investors at least eighteen years old to apply to invest in Earn Accounts through Celsius Network’s website or smartphone application. As many as 17,000 Texans may have invested in the Earn Accounts.

Investors opened accounts by transferring eligible cryptocurrency to the Celsius Network to invest in Earn Accounts. Investors relinquished control over their cryptocurrency and the Celsius Network took full legal and beneficial ownership of the investors’ cryptocurrency.

On June 11, 2022, a member of the public referred to herein as “Mike” posted a message on social media that claimed he was “hearing about [EARN] accounts being locked” and that he “hope[d] retail can get out.”

On the same day, Mashinsky posted a public response on social media that read as follows:

Mike do you know even one person who has a problem withdrawing from Celsius?. [sic]

why spread FUD and misinformation. [sic]

If you are paid for this then let everyone know you are picking sides otherwise our job is to fight Tradfi together…

Although Respondent’s public response suggested Celsius Network was not freezing Earn Accounts, the very next day, on June 12, 2022, Celsius Network froze Earn Accounts. Respondent and Celsius Network collectively announced the freeze through the website for Celsius Network, a blog, and social media.

On July 13, 2022, Celsius US Holding, LLC, Celsius Networks Lending, LLC, Celsius Network, LLC, Celsius Network, Inc., Celsius Mining, LLC, Celsius Lending, LLC, and Celsius KeyFi, LLC, filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York.

Celsius Network was not licensed as a Money Service Business in Texas and was not able to lawfully conduct currency exchange or money transmission activities defined by Chapter 151 of the Texas Finance Code.

The Earn Accounts were not expressly protected by the Securities Investor Protection Corporation, otherwise known as the SIPC, a federally mandated, non- profit, member-funded United States corporation created under the Securities Investor Protection Act of 1970 that mandates membership of most US-registered broker-dealers.

The Earn Accounts were also not insured by the Federal Deposit Insurance Corporation, otherwise known as the FDIC.

The Enforcement Division is praying for a proposal for decision for the entry of an order that Respondent immediately cease and desist violating Sections 4003.001 and 4004.051 of the Securities Act, and Respondent immediately cease and desist from engaging in fraud in connection with the offer or sale of securities in Texas.

The Enforcement Division is also praying the Honorable Administrative Law Judge issue a proposal for decision that orders Respondent to pay a refund of principal to Texans who invested in unregistered Earn Accounts as set forth in Section 4007.108 of the Securities Act.

The Enforcement Division is further praying for a proposal for decision for the entry of an order that assesses an administrative fine against Respondent pursuant to Section 4007.106. This prayer is for an administrative fine that does not exceed the greater of $20,000 per violation or the gross amount of any economic benefit Respondent gained as a result of violating Sections 4003.001 and 4004.051 of the Securities Act or as a result of engaging in fraud in connection with the offer or sale of securities in Texas.

In any event, this prayer includes an additional amount of not more than $250,000 for all illegal and fraudulent acts and practices committed on Texans 65 years of age or older.

The Enforcement Division prioritizes the payment of refunds to investors over the assessment of an administrative fine. It will therefore pray the Honorable Administrative Law Judge prioritize the payment of refunds to investors and subordinate any assessment of an administrative fine until or unless Texans receive a return of principal deposited in Earn Accounts.