Former crypto executives Alex Mashinsky of Celsius and Sam Trabucco of Alameda Research are navigating legal challenges as their respective cases unfold in US courts. Mashinsky, facing multiple criminal charges related to alleged market manipulation and fraud involving Celsius’s token and investment programs, recently lost a motion to dismiss two key charges. His trial is set for early 2025. Meanwhile, Trabucco has reached a settlement in the FTX bankruptcy case, agreeing to transfer high-value assets to FTX Debtors and drop a $70 million claim in exchange for immunity from future claims.
FTX, Alameda Research, and Former Co-CEO Sam Trabucco Reach Settlement in Delaware Bankruptcy Court
FTX Digital Markets, and former Alameda Research co-CEO Sam Trabucco have reached a settlement in the United States Bankruptcy Court for the District of Delaware. Trabucco, who left the company mere months before its unraveling, has kept a low profile since his departure. This settlement marks his first publicized agreement with FTX Debtors as the company attempts to recover funds for its creditors.
The settlement agreement, which will be reviewed on Dec. 12, involves Trabucco relinquishing several high-value assets and abandoning substantial claims. Specifically, he has agreed to transfer the titles to two San Francisco apartments valued at $8.7 million and his 53-foot yacht, worth approximately $2.5 million, to FTX Debtors. These asset transfers represent a significant portion of the funds Trabucco may have accrued during his time with Alameda Research, the crypto trading firm known for its aggressive investment strategies.
Additionally, Trabucco will forego claims totaling $70 million against FTX, representing a significant concession. In exchange, FTX will release him from any legal claims they may have against him, effectively resolving any pending disputes between the two parties.
The agreement aims to expedite the settlement process, as both sides noted the potential for protracted and costly litigation if the case were to proceed in court. According to a motion filed with the court, ”The proposed settlement likely would generate more value to the Debtors’ estates on a risk-adjusted basis than the Debtors could recover if they were to initiate an adversary proceeding against Trabucco and obtain a favorable judgment against him.”
The settlement follows what the filing described as “constructive, arm’s length negotiations,” signaling a collaborative approach rather than an adversarial one. Such settlements are often sought in bankruptcy cases to avoid costly litigation that may not yield substantially better outcomes than those achieved through negotiated settlements.
If the FTX Debtors had pursued a formal legal action against Trabucco, he would likely have mounted defenses and counterclaims, potentially leading to extended court proceedings. The resources saved through this settlement could then be channeled toward creditors and other stakeholders awaiting reimbursements from the now-defunct crypto exchange.
Objections to the settlement can be filed through Nov. 26, giving other involved parties an opportunity to express concerns or contest the terms.
A Low Profile Since Departure
Sam Trabucco, who was once a visible leader within the cryptocurrency space, notably stepped down from his role at Alameda Research in August 2022, just three months before FTX’s dramatic downfall. Trabucco, who joined Alameda as a trader, rose to the position of co-CEO alongside Caroline Ellison in August 2021. His leadership was marked by an apparent affinity for high-stakes trading strategies that helped Alameda navigate the volatile crypto markets. Despite his resignation, some industry insiders speculated about his awareness of or involvement in the practices that ultimately contributed to FTX’s collapse.
In announcing his departure on X, Trabucco praised Alameda, calling it “an awesome place” with the most “impressive” team he has ever known. He cited personal reasons for stepping away and noted that he planned to “prioritize other things.”
His departure came at a pivotal moment, as the crypto industry faced heightened scrutiny and market turbulence. After FTX’s implosion, Trabucco remained out of the public eye, even as former colleagues, including FTX founder Sam Bankman-Fried, faced criminal charges. While United States authorities brought charges against multiple FTX executives, Trabucco has not faced allegations of wrongdoing, and no charges have been filed against him.
In May, Trabucco emerged briefly to write a letter to the court in support of former FTX Digital Markets co-CEO Ryan Salame, who also became embroiled in the legal fallout. In the letter, Trabucco requested leniency in Salame’s sentencing, providing insight into his connections within the FTX network and his willingness to support former colleagues.
FTX’s collapse has spurred widespread financial fallout, with creditors and former customers alike eagerly awaiting recovery of funds. The FTX bankruptcy proceedings in Delaware have involved extensive forensic accounting to trace assets that could be returned to creditors, and numerous settlements have been reached with former employees and affiliated parties.
As the Dec. 12 hearing approaches, stakeholders and industry observers will closely watch the court’s response to this settlement, which could set a precedent for future agreements within the bankruptcy proceedings. This settlement may also influence the regulatory landscape, as lawmakers and agencies assess the implications of FTX’s collapse and the broader need for transparency and accountability in crypto finance.
Celsius Ex-CEO Alex Mashinsky Faces Legal Setbacks as Judge Denies Motion to Dismiss Charges of Fraud and Market Manipulation
Meanwhile, in a major blow to Alex Mashinsky, former CEO of the crypto lending platform Celsius, a US federal judge has denied his legal team’s motion to drop two serious charges related to commodities fraud and alleged manipulation of the Celsius (CEL) token price. The ruling keeps intact the full array of criminal charges Mashinsky faces, with the trial set to begin in January 2025.
On Nov. 8, Judge John Koeltl of the US District Court for the Southern District of New York rejected Mashinsky’s efforts to eliminate two of the charges against him, stating that his legal team’s arguments were “either moot or without merit.” With this ruling, the former Celsius CEO still faces a total of seven felony counts, which collectively paint a troubling picture of his alleged role in misleading investors and manipulating Celsius’ CEL token price.
The charges stem from a Department of Justice (DOJ) indictment filed in July 2023, which alleged that Mashinsky, along with other executives at Celsius, misrepresented the platform’s financial stability while engaging in deceptive practices to artificially inflate the price of the CEL token.
Mashinsky’s legal team argued that the charges lacked consistency, particularly those involving securities and commodities fraud. According to his attorneys, the DOJ’s case is contradictory in that it simultaneously treats Celsius’ “Earn Program” as a security while considering Bitcoin (BTC) deposits made by Celsius investors as commodities. The lawyers argued that this distinction made it difficult for Mashinsky to have had “fair warning” that his actions could be deemed criminal, particularly with respect to allegedly manipulating CEL’s price.
In response, Judge Koeltl found these arguments unconvincing. His rejection of the motion indicates that the charges against Mashinsky are grounded on sufficiently clear legal foundations, regardless of the complexities around defining Celsius’ operations in regulatory terms.
In addition to seeking the dismissal of charges, Mashinsky’s team filed a motion in January requesting that any information related to Celsius’ bankruptcy proceedings be excluded from the criminal case. Judge Koeltl has deferred a decision on this matter, suggesting it may be addressed closer to or during the trial.
Including details about Celsius’ bankruptcy could influence jurors’ perceptions of Mashinsky, as Celsius’ financial collapse in July 2022 left thousands of investors unable to access their funds. However, Judge Koeltl’s deferral leaves open the possibility that this information could still be presented in court, further complicating Mashinsky’s defense.
In an attempt to address potential biases among jurors, Mashinsky’s attorneys requested that they be allowed to question prospective jurors about their knowledge of FTX, the now-infamous cryptocurrency exchange that collapsed in late 2022 amid allegations of fraud. The defense argued that FTX’s implosion created a “toxic” perception of the cryptocurrency industry, which could potentially prejudice jurors against Mashinsky. The legal team anticipates that FTX will be mentioned during the trial, given that many of the legal and ethical concerns facing Mashinsky are similar to those associated with FTX and its executives.
The DOJ’s charges against Mashinsky include allegations of wire fraud, securities fraud, commodities fraud, and conspiracy to defraud Celsius’ investors. According to the DOJ, Mashinsky and other executives at Celsius misrepresented the company’s financial health to reassure customers, even as it faced severe liquidity issues. Authorities claim that the former CEO was complicit in manipulating the price of CEL to create an illusion of stability and profitability, actions that allegedly led investors to keep their funds on the platform.
These charges come amid a broader crackdown by US regulators on misleading or fraudulent practices within the cryptocurrency industry. Celsius’ former Chief Revenue Officer, Roni Cohen-Pavon, was also implicated in the scheme. Initially pleading not guilty, Cohen-Pavon later changed his plea to guilty on charges related to CEL price manipulation. His sentencing is set for Dec. 11, making him one of the first Celsius executives to formally admit to wrongdoing.
Fallout and Future of Celsius Network
Celsius, once one of the most prominent crypto lending platforms, filed for bankruptcy in July 2022 after freezing customer withdrawals amid a severe liquidity crisis. The company’s collapse left thousands of investors unable to access their funds, with many now joining long queues of creditors in hopes of recouping some of their losses through the ongoing bankruptcy proceedings. Celsius’ failure has been widely cited as a case study in the risks of unregulated financial products and the importance of transparency in the cryptocurrency industry.
The US Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission (FTC) have all filed complaints against Mashinsky and Celsius, accusing them of defrauding investors. These regulatory bodies argue that Celsius promoted itself as a safe alternative to traditional banks, promising high returns on customer deposits without disclosing the significant risks involved in its lending operations.
Mashinsky’s legal team faces an uphill battle, as the court’s recent rulings suggest that Judge Koeltl is unwilling to dismiss key charges or restrict the scope of evidence. With the trial slated for January 2025, Mashinsky’s attorneys will likely continue to seek ways to narrow the charges and limit potentially damaging information, such as Celsius’ bankruptcy details. However, the inclusion of CEL price manipulation and alleged fraud charges indicates that the trial will delve into Celsius’ internal practices and financial stability before its collapse.
Should Mashinsky be found guilty on any of the charges, he faces the possibility of substantial fines and prison time. The trial also represents a critical test case for regulatory agencies seeking to clamp down on fraudulent practices within the crypto space, especially as unregulated platforms continue to attract millions of investors.
This article was originally Posted on Coinpaper.com
