The Criminal Defense Blog

Introduction:

In 2018, Alexander Mashinsky founded Celsius Network, a crypto platform that he promoted as a secure place for depositing crypto assets to earn interest. The DOJ charges that Mashinsky operated Celsius through fraudulent means, misleading investors about its profitability and business practices. 

The Government further alleges that he also manipulated the price of Celsius's proprietary token, CEL, for personal profit. 

By mid-2022, Celsius faced severe financial issues, halting customer withdrawals and later filing for bankruptcy. Prosecutors charge that Mashinsky's fraud at Celsius involved two criminal schemes: one based on false statements to customers to attract investments, and another involving manipulative trading of the CEL token. 

They allege he misrepresented Celsius's investment strategies, risk levels, and financial stability, falsely inflating CEL's price through substantial market purchases. The Government charges his manipulation, partly funded by customer assets, significantly raised CEL's price, allowing Mashinsky to profit immensely from his holdings, contrary to public claims of market independence and organic demand.

The indictment alleges that: (1) Mashinsky personally reaped approximately $42 million in proceeds from his sales of CEL; (2) At times, Mashinsky falsely claimed to the public that he was not selling CEL, when in reality he was taking advantage of the upward price manipulation he had orchestrated by contemporaneously selling huge quantities of his CEL on the market. (3) These sales violated Celsius’s insider trading policy, which Mashinsky had signed, and which forbade him from selling CEL in excess of $20,000 per day or $50,000 per week.

Defendant's Motion to Dismiss: Mashinsky contends that Count Two (commodities fraud) is inconsistent with Count One (securities fraud), claiming a single scheme can't be both. He also argues that Count Six (market manipulation) lacks clarity, potentially violating fair notice requirements. Memo in Support of Motion to Dismiss

Government Response to Motion to Dismiss: The prosecution refutes Mashinsky's claims, insisting that Counts One and Two aren't mutually exclusive and can coexist, as the fraudulent actions relate to different aspects of the scheme. The prosecution emphasizes that an indictment need not detail all evidence, but must sufficiently inform the defendant of the charges to prepare a defense, and avoid double jeopardy. The government argues that Mashinsky's actions fall under commodities fraud as they involved deceptive practices related to Bitcoin, a recognized commodity. -The government counters Mashinsky's claim on Count Six, affirming that the indictment clearly outlines the alleged manipulative acts, providing ample notice to the defendant. Goverment’s Response

Peter Kambolin, CEO of Systematic Alpha Management LLC (SAM), has been sentenced for a transnational “cherry-picking” scheme involving foreign exchange and cryptocurrency futures contracts. DOJ Press Release 

Understanding the 'Cherry-Picking' Scheme

The term 'cherry-picking' in this context refers to a deceptive practice where a trader, in this case, Kambolin, unfairly allocates profitable trades to his own accounts while assigning unprofitable ones to his clients. This sort of manipulation not only can undermine the integrity of the financial markets but it also can result in significant losses for investors.

A Deeper Dive into the Case

Kambolin's operation, spanning from January 2019 to November 2021, allegedly involved a complex web of deceit. By masquerading SAM's trading strategies as focused on cryptocurrency futures and foreign exchange futures contracts, he misled investors. According to the DOJ, the reality was starkly different, with a substantial portion of trading involving equity index futures contracts. This misrepresentation played a pivotal role in the Defendant’s alleged defrauding of investors across the United States and abroad.

Kambolin's guilty plea to one count of conspiracy to commit commodities fraud. Kambolin was thereafter sentenced to serve a two-years impisonmnet to be followed by one and a half years of home confinement, and a forfeiture of approximately $1.6 million. 

In Lora v. United States, the Supreme Court ruled that the concurrent-sentence bar in 18 U.S.C. § 924(c)(1)(D)(ii) does not apply to sentences under § 924(j).

This decision stems from the case of Efrain Lora, convicted of aiding and abetting a § 924(j) offense and conspiring to distribute drugs. The District Court sentenced Lora to consecutive terms for both counts, based on its interpretation that § 924(c)'s concurrent-sentence bar extended to § 924(j).  At sentencing, the District Court concluded that it lacked discretion to run the sentences for Lora's two convictions concurrently, because § 924(c)(1)(D)(ii)'s bar on concurrent sentences governs § 924(j) sentences. The District Court sentenced Lora to consecutive terms of imprisonment for the drug-distribution-conspiracy count and the § 924(j) count. Lora appealed and the Court of Appeals affirmed the District Court's sentence. 

Lora then appealed to the Supreme Court. The Court noted that "a federal court imposing multiple prison sentences typically has discretion to run the sentences concurrently or consecutively. See 18 U.S.C. § 3584. An exception exists in § 924(c), which provides that "no term of imprisonment imposed on a person under this subsection shall run concurrently with any other term of imprisonment." § 924(c)(1)(D)(ii).

The Court considered whether § 924(c)'s bar on concurrent sentences extends to a sentence imposed under a different subsection, § 924(j)." The Supreme Court clarified that § 924(c)'s bar on concurrent sentences only applies to terms of imprisonment imposed under § 924(c) itself, not to sentences under § 924(j). This interpretation aligns with the legislative intent of Congress to allow more flexibility in sentencing under § 924(j), distinct from the mandatory consecutive sentencing under § 924(c).

Defendant, a French national who had been residing in the United Arab Emirates (UAE), pled guilty at the federal courthouse in Brooklyn, New York to conspiring to commit wire fraud in connection with defrauding purchasers of “Mutant Ape Planet” NFTs, a type of digital asset.  Today’s proceeding took place before United States Magistrate Judge Vera M. Scanlon.  When sentenced, Michel faces up to five years in prison.  Michel has also agreed to pay $1.4 million in forfeiture. DOJ Press Release

“[Defendant] enticed investors with promises of capitalizing on the NFT trend, only to abandon the project after amassing nearly $3 million in what’s described as a ‘rug-pull scheme.’ The defendant, accused of misleading the Mutant Ape NFT community, claimed innocence and even labeled victims as ‘too toxic.’ However, these attempts to evade responsibility came to a conclusion with today’s plea,” stated Ivan J. Arvelo, Special Agent in Charge of HSI New York. “In the face of evolving investment landscapes, HSI remains vigilant, utilizing cutting-edge tools to safeguard individuals from unscrupulous actors and their attempts to exploit well-meaning investors.”

Accroding to the DOJ, Defendant marked NFTs under the allegedly false promise of numerous rewards and benefits designed to increase demand for, and the value of, their newly acquired NFTs.  After selling out of the NFTs, the purchasers were “rug pulled” – a cryptocurrency scam in which a developer attracts investors, but pulls out before the project is complete, leaving buyers with a worthless asset – as none of the promised benefits were provided.  Instead, millions worth of the NFT purchasers’ cryptocurrency was diverted for Michel’s personal benefit. 

On October 6, 2023, Defendant was convicted by a federal jury in Fort Pierce, Florida for his involvement in a $67 million Medicare fraud scheme. The Government charged that Defendant mislead physicians into authorizing numerous unnecesssary genetic tests that were not utilized in the subsequent medical care and treatment of patients.

The case revolved around a call center, managed by Defendant which was alleged to have engaged in telemarketing calls to Medicare beneficiaries and their physicians. A particular division of the call center, referred to as the “doctor chase” division, interacted with the primary care physicians of the targeted beneficiaries, aiming to secure their authorization for genetic tests based on created medical documentation.

During the trial, it was brought to light that there were allegations of misleading representations made to the medical providers, suggesting that the beneficiaries had requested these genetic tests and had medical conditions that warranted such testing. Upon obtaining the physicians’ authorizations, claims were then submitted to Medicare for these genetic tests.

The Government’s case suggested that the laboratories involved did not have the necessary infrastructure or personnel to conduct the tests and were alleged to have outsourced the genetic tests to other labs, which performed them at a lower cost. The disparity in the actual cost of testing and the amount claimed from Medicare was a key theme of the Government’s fraud case. According to the DOJ’s press release, the period between June 2020 and July 2021 saw claims of over $67 million submitted to Medicare, with over $52 million being paid out.

Defendant was ultimately convicted of conspiracy to commit wire fraud and conspiracy to commit money laundering. Defendant awaits sentencing and faces a maximum penalty of 20 years in prison for the conspiracy to commit wire fraud count and 10 years for the conspiracy to commit money laundering count.