Katherine Ross

The Office of the Inspector General of the Federal Deposit Insurance Corporation released a report on the FDIC’s crypto risk strategies Wednesday.&nbsp;



The Office of the Inspector General made two recommendations to the FDIC, including a process for supervising crypto activities at regulated institutions.



According to a press release, the OIG made the recommendations “based on evidence obtained during [their] evaluation.” It said “the FDIC’s lack of clear procedures causes uncertainty for supervised institutions in determining the appropriate actions to take.”



The OIG <a href="https://www.fdicoig.gov/news/summary-announcements/fdic-strategies-related-crypto-asset-risks">recommends</a> that the FDIC needs to assess the potential risks of crypto because, without “effective guidance,” the FDIC or the institutions under its umbrella “may not take appropriate actions to address the most significant risks posed by crypto assets.”



“Specifically, the <a href="https://blockworks.co/tag/fdic">FDIC</a> has not yet completed a risk assessment to determine whether the Agency can sufficiently address crypto asset-related risks through actions such as issuing guidance to supervised institutions,” the report said.



Further, the OIG warned that a lack of review process could make it seem as though the supervisory body is not being “supportive” of institutions currently engaging or planning to engage with crypto.



The FDIC agreed with the report’s recommendations and “plans to complete corrective actions for these recommendations” by the end of January.



The report also calls out crypto companies making “misrepresentations” about deposits being backed by the FDIC. As an example, it referred to an unnamed crypto company.



“In 2022, a cryptocurrency company filed for <a href="https://blockworks.co/tag/bankruptcy">bankruptcy</a>. This company had been misrepresenting to its customers for over a year that the funds it held for customers were insured by the FDIC,” the report said.



While there were a number of crypto companies that declared bankruptcy in 2022, the Federal Trade Commission <a href="https://blockworks.co/news/ftc-cftc-sues-voyager-stephen-ehrlich">most recently targeted bankrupt lender Voyager</a> for its deceptive claims around FDIC insurance.&nbsp;



The company was allegedly “well aware” that the deposits were not backed by the FDIC, according to a FTC suit.



Additionally, Binance <a href="https://blockworks.co/news/binance-terms-of-service">updated its terms of service to say that accounts</a> are “not eligible” for insurance protections after it said — in an email to customers and seen by Blockworks — that it had been given “guidance” by the FDIC.



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FDIC lacks ‘clear procedures’ for crypto-related risks, report says

A pair of US regulators filed legal actions against the former CEO of Voyager, a crypto lending firm that declared bankruptcy last year.&nbsp;



The Federal Trade Commission and the Commodity Futures Trading Commission both submitted complaints in the US District Court for the Southern District of New York, filings show. While the FTC named both Voyager and Ehrlich as defendants, the CFTC action named Ehrlich as the sole defendant.&nbsp;



The <a href="https://www.cftc.gov/PressRoom/PressReleases/8805-23">CFTC</a> is pursuing “restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act” against former CEO Stephen Ehrlich.



As part of the allegations, the CFTC claims that Ehrlich defrauded customers by “misrepresenting the safety and financial health of the Voyager digital asset platform.”



In an emailed statement to Blockworks, Ehrlich said the FTC and CFTC “filed claims leave me both outraged and deeply dismayed. The talented management team at Voyager created and maintained our platform in full compliance with the existing regulatory structure. Our team consistently communicated and worked closely with our regulators.”



“I am profoundly upset by the losses suffered by Voyager’s customers and creditors due to the conduct of others in the crypto industry,” Ehrlich continued. “I am currently reviewing the government’s claims, but it is clear I am being used as a scapegoat for the bad actions of others. I look forward to vindication in court.”



Meanwhile, the FTC complaint alleges that Voyager and Ehrlich made deceptive claims about possessing insurance from the Federal Deposit Insurance Corporation, which insures deposits in US banks up to $250,000.



<a href="https://blockworks.co/tag/voyager">Voyager</a> marketed, on both its website and the app, that funds would be FDIC-insured, the FTC claimed. The complaint attached screenshots showing the webpage advertising FDIC insurance of up to $250,000.



The <a href="https://blockworks.co/tag/ftc">FTC</a> claims that Ehrlich and Voyager were “well aware” that Voyager and, therefore, customer deposits were not insured.&nbsp;



In a separate court move, the FTC moved to settle with Voyager’s corporate entity, which is expected to pay a $1.65 billion penalty as part of a settlement. The firm neither admitted nor denied the claims, per the court filing.&nbsp;



The FTC complaint also named Ehrlich’s wife, Francine Ehrlich, as a relief defendant.&nbsp;



“Relief Defendant Francine Ehrlich has received funds that can traced directly to Defendants’ deceptive acts or practices alleged below, and she has no legitimate claim to those funds,” the FDIC alleged.



Voyager was one of a series of companies that declared bankruptcy in 2022 in the wake of the collapse of crypto hedge fund Three Arrows Capital. The firm <a href="https://blockworks.co/news/voyager-files-for-bankruptcy-days-after-freezing-withdrawals">filed for bankruptcy protection</a> on July 6 of that year after it froze deposits and withdrawals.&nbsp;



Voyager <a href="https://blockworks.co/news/voyager-celsius-bankruptcy-update">finalized</a> a plan to <a href="https://blockworks.co/news/voyager-liquidation-procedures">liquidate</a> its assets as part of a customer repayment plan earlier this year.&nbsp;&nbsp;



<a href="https://www.bloomberg.com/news/articles/2023-10-06/us-cftc-weighs-penalizing-bankrupt-crypto-lender-voyager-s-ex-ceo?srnd=markets-vp&amp;sref=y3YMCJ4e">Bloomberg</a> reported on Oct. 6 that CFTC officials were weighing charges against Ehrlich.&nbsp;



“These allegations appear to be one of those times where the referees are making new rules and calling foul after the game has ended,” Ehrlich told the outlet at the time. “I look forward to being vindicated in court.”



Update Oct. 12, 2023 at 5:35 pm ET: Added statement from Stephen Ehrlich.



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CFTC and FTC sue former CEO of bankrupt crypto lender Voyager

Roni Cohen-Pavon, former chief revenue officer at Celsius, pled guilty to four charges according to multiple reports on Thursday.



Bloomberg reported that the charges included fraud, securities price manipulation and conspiracy. His sentencing is set for December 2024, and he has a chance of leniency depending on his cooperation in the case against his former boss, Alex Mashinsky.&nbsp;



Cohen-Pavon and former CEO Mashinsky are accused of inflating “the price of Celsius’s proprietary token, CEL,” in a July Department of Justice indictment.



The DOJ <a href="https://blockworks.co/news/us-sues-alex-mashinsky">claims that both Mashinsky and Cohen-Pavon</a> discussed artificially inflating Celsius (<a href="https://blockworks.co/price/cel">CEL</a>) in WhatsApp messages.



“We’re not just sitting and watching the price. We’re on it all week and even now [another Celsius executive] and I are live with the market maker. The issue is that people are selling and no one is buying except for us,” Mashinsky allegedly said.



Cohen-Pavon is named as a co-defendant in the DOJ’s suit against <a href="https://blockworks.co/tag/alex-mashinsky">Mashinsky</a>, who also stands accused of defrauding investors. He faces a suit from the Federal Trade Commission as well as the DOJ.



An <a href="https://blockworks.co/news/doj-freezes-mashinsky-assets">unsealed order in September</a> showed that prosecutors froze Mashinsky’s assets in August.



Mashinsky’s lawyers <a href="https://blockworks.co/news/mashinsky-files-dismissal-ftc">filed a motion to dismiss the FTC suit</a> on Tuesday, Sept. 12, claiming that the FTC does not “allege a violation of an FTC rule.”



However, lawyers for his co-defendant Hanoch Goldstein said, “Mashinsky was responsible for leading almost all of the acts of misconduct alleged in the Complaint, including conducting weekly marketing and advertising videos called ‘Ask Mashinsky Anything.”



Mashinsky’s legal team did not immediately respond to a request for comment on Cohen-Pavon’s plea.



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Ex-Celsius executive pleads guilty to four charges

Former Celsius CEO Alex Mashinsky has filed a motion to dismiss in the Federal Trade Commission’s suit against him.&nbsp;



Mashinsky’s motion to dismiss follows a similar one filed by co-defendant and Celsius co-founder Hanoch “Nuke” Goldstein. Mashinsky’s push is largely focused on one of the arguments made by Goldstein, which claims that the FTC “does not allege a violation of an FTC rule.”



Parts of Goldstein’s motion to dismiss places blame on Mashinsky and others at Celsius.&nbsp;



“Mashinsky was responsible for leading almost all of the acts of misconduct alleged in the Complaint, including conducting weekly marketing and advertising videos called ‘Ask Mashinsky Anything,” Goldstein’s lawyers argued.



In Goldstein’s motion to dismiss, his lawyers argued that “the FTC’s complaint largely describes allegations of misconduct by others at Celsius, and then relies upon perfunctory and boilerplate allegations that Goldstein was part of their scheme.”



Goldstein also argued that the FTC’s settlement with <a href="https://blockworks.co/tag/celsius">Celsius</a>, which was announced earlier this summer, permanently bars the “alleged misconduct.”



The FTC and bankrupt lender settled for $4.7 billion back in July, and <a href="https://blockworks.co/news/celsius-ceo-absent-from-4-7b-ftc-settlement">limited the former lender from engaging in business practices</a> linked to crypto assets.



The FTC’s “Complaint cannot substantiate a claim that <a href="https://blockworks.co/tag/alex-mashinsky">Mashinsky</a> ‘is violating’ or is ‘about to violate’ the law because Mashinsky resigned from his position as CEO of Celsius” in September of last year, though a typo in the court document says 2023.&nbsp;



The FTC’s complaint alleges that the defendants violated the Gramm-Leach-Bliley act, which <a href="https://www.ftc.gov/business-guidance/resources/how-comply-privacy-consumer-financial-information-rule-gramm-leach-bliley-act#:~:text=The%20FTC%2C%20the%20federal%20banking,rules%20implementing%20GLB's%20privacy%20provisions.">covers</a> consumer financial privacy. Though, as both Mashinsky and Goldstein point out, the original FTC complaint “fails to allege” a violation of the act. 



Mashinsky also <a href="https://blockworks.co/news/cftc-ftc-sue-celsius">faces a lawsuit from the DOJ</a>, and a recent unsealed motion revealed that lawyers for the <a href="https://blockworks.co/news/doj-freezes-mashinsky-assets">government froze his assets</a> in August.



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Ex-Celsius CEO files motion to dismiss in FTC suit 

In a move designed to prevent Celsius from engaging in business practices linked to crypto assets, the FTC reached an agreement with the bankrupt lender that would return an eye-popping $4.7 billion to customers.



No monetary fines were imposed directly on the company by the FTC — as is typical in such settlements — with the regulator evidently preferring to try to make Celsius customers whole. The $4.7 billion judgment against Celsius came with a number of conditions attached, including that the bankrupt company cannot restart its operations. 



The settlement was “suspended” under the <a href="https://blockworks.co/tag/ftc">FTC</a> judgment in a bid permitting <a href="https://blockworks.co/tag/celsius">Celsius</a> to return remaining assets to its former users.



The <a href="https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-reaches-settlement-crypto-platform-celsius-network-charges-former-executives-duping-consumers">settlement</a> does not apply to former Celsius executives, including former CEO <a href="https://blockworks.co/tag/alex-mashinsky">Alex Mashinsky</a>, as well as co-founders Shlomi Daniel Leon and Hanoch Goldstein. The executive trio, the FTC said, did not reach a settlement with the regulator and would face federal court proceedings as a result. 



The <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/2223137celsiusnetworkorder.pdf">proposed</a> settlement with Celsius would prevent the bankrupt lender from operating what appeared to be all of its business lines, including offering or distributing crypto-linked assets, as well as facilitating deposit and withdrawals. 



Under a lawsuit that preceded the settlement, the FTC said Celsius, including employees and attorneys, was prohibited from obtaining customer information with false information.&nbsp;



The FTC filed a lawsuit against Celsius and former executives in New York on Thursday, alleging deceptive practices by the company and its leadership.



Celsius “deceived users by falsely promising them that they could withdraw their deposits at any time, that the company maintained a $750 million insurance policy for deposits, that it had sufficient reserves to meet customer obligations,” the regulator said, adding that the company lacked the reserves to do so.&nbsp;



The allegations also state the bankrupt lender “routinely” made unsecured or under-collateralized loans — despite Celsius stating it did not do so as a business practice. 



The <a href="https://blockworks.co/news/sec-sues-celsius-former-ceo-for-market-manipulation-securities-fraud">FTC joined the CFTC and SEC in suing</a> Mashinsky and Celsius. The DOJ has also <a href="https://blockworks.co/news/cftc-ftc-sue-celsius">unsealed an indictment against Mashinsky</a>.



Celsius filed for bankruptcy last July after the algorithmic stablecoin TerraUSD collapsed.



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Celsius CEO absent from $4.7B FTC settlement

The CFTC and FTC filed suit against Celsius and former CEO Alex Mashinsky on Thursday, joining a fast-growing wave of federal legal actions taken in succession against the crypto lender.&nbsp;&nbsp;



Mashinsky on Thursday was also hit with criminal charges by the Department of Justice — the US District Court for the Southern District of New York unsealed an indictment against the Celsius chief executive and his former chief revenue officer on Thursday.&nbsp;



A grand jury charged seven counts in the case, including wire fraud and token manipulation.&nbsp;



Each of the civil and criminal actions alleged deep seated fraud at Celsius, as organized by Mashinsky, through purported complex balance sheet maneuvers that left customers vulnerable to withdrawal issues and systemic leverage problems.&nbsp;&nbsp;



<h2 class="wp-block-heading">What the DOJ claims&nbsp;</h2>



The DOJ claimed Mashinsky “orchestrated a scheme to defraud customers of Celsius Network” together with the former Chief Revenue Officer Roni Cohen-Pavon.&nbsp;



From 2018 to 2022, Mashinsky, prosecutors said, misled investors about “core aspects of Celsius’s business.”



The DOJ claims Mashinsky falsely said the bankrupt crypto lender was a modern bank, and also manipulated the price of its token. Celsius did not hold a federal banking charter. The SEC confirmed a number of those claims in its lawsuit against both Mashinsky and Celsius Thursday.



Celsius was in a “dire financial situation” by mid-2022, the DOJ said.&nbsp;



In fact, by the time that the algorithmic stablecoin TerraUSD depegged and caused the crypto market to drop, Celsius “could not withstand the drop in crypto asset prices.” The customer withdrawals and the price drop in CEL both put steep financial pressure on the company.&nbsp;



<h2 class="wp-block-heading">What the FTC claims</h2>



Customers were “duped” into depositing crypto on Celsius, the CFTC said.&nbsp;



Mashinsky and Celsius both assured investors that the lender was “safer’ than a bank or traditional institution” and proceeded to claim deposits were safe.



Celsius did this by claiming that it earned profits at “no risk” to its customers “ by making secured crypto loans to other exchanges,” the FTC claimed.



The FTC’s suit also names Shlomi Daniel Leon, a co-founder of Celsius, said to have worked as the lender’s chief strategy officer.



Like the SEC, the FTC claimed Celsius misrepresented its products and services.&nbsp;



“Internally, Celsius employees acknowledged that the promises that Celsius made only collateralized loans were false, and that Mr. Mashinsky was a ‘liar’ for claiming that ‘we do not do unsecured lending,’” the FTC claimed.&nbsp;



<h2 class="wp-block-heading">What the CFTC claims&nbsp;</h2>



All four suits echo similar claims against the bankrupt lender and its former CEO, saying both defrauded investors and misled the public about its financial position.



Celsius, according to the CFTC’s suit, “acted as an unregistered commodity pool operator of the Celsius Pool by soliciting, accepting, and receiving assets for the purpose of trading commodity interests; and Mashinsky operated as an unregistered associated person of that CPO by soliciting members of the public to contribute to the Celsius Pool.”



The suit also claims Mashinsky and Celsius defrauded investors.&nbsp;



“In order to meet the returns promised to its customers, Celsius engaged in increasingly risky investment strategies, including the extension of millions of dollars in uncollateralized loans and millions of dollars in unregulated, risky decentralized finance agreements,” the CFTC said.



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CFTC, FTC sue Celsius as DOJ charges CEO Mashinsky, exec

Ornella Hernandez

Michael Bodley

The FTC’s move to <a href="https://www.ftc.gov/news-events/news/press-releases/2022/12/fortnite-video-game-maker-epic-games-pay-more-half-billion-dollars-over-ftc-allegations" target="_blank" rel="noreferrer noopener">slap</a> Fortnite developer Epic Games with a cumulative $520 million fine for alleged lax privacy settings said to put minors at risk and a problematic refund process poses a crucial question for the metaverse: Are their virtual worlds next? 



The Web3 world is paying attention, even though <a href="https://blockworks.co/news/fortnite-developer-epic-games-gets-2b-from-sony-kirkb-to-drive-metaverse-efforts" target="_blank" rel="noreferrer noopener">Fortnite</a> isn’t based on a blockchain. The blockbuster title has more than a little in common with its play-to-earn cryptocurrency peers: online payments (albeit via fiat), chat forums and the ability to create nearly fully customized avatars. That’s not to mention one particular game mode that sets players up with their own island, which they use as a home base to visit the virtual homes of their friends.



Sound familiar?&nbsp;



Epic Games representatives even alluded to “virtual currencies” in a lengthy <a href="https://www.epicgames.com/site/en-US/news/epic-ftc-settlement-and-moving-beyond-long-standing-industry-practices" target="_blank" rel="noreferrer noopener">statement</a> on the settlement, the largest yet of its kind&nbsp; — saying that “games should go above and beyond to make sure players even more clearly understand when they are making a purchase” in both fiat and cryptocurrencies.&nbsp;



The FTC has historically signaled out household names, like Fortnite, to set an example by levying a “really big fine and [using] that as a signal to the industry,” according to Dan Jasnow, an attorney at law firm ArentFox Schiff who focuses on the metaverse and related intellectual property matters.&nbsp;&nbsp;



Given the “entire metaverse, blockchain and crypto industry is under a lot of scrutiny” after the fallout from FTX, Jasnow told Blockworks that “everybody should take this as a warning that the FTC is closely scrutinizing consumer protection issues across the board.”



The FTC claims Epic was unlawfully collecting identifiable information from users younger than 13, and that it employed design tricks — or “dark patterns” — to charge customers without first explicitly obtaining their consent. Fortnite allegedly routinely saved the payment information of its players after an initial purchase. Since the regulator started looking into the matter, the game’s developers have introduced a new payment order flow that includes more streamlined refunds.&nbsp;



Voice chat with other players was enabled by default, Jasnow said, leading to additional privacy concerns when it comes to unintentionally broadcasting personal conversations. Epic in September retooled its default privacy settings to impose higher standards for minors.



“No developer creates a game with the intention of ending up here,” Epic said. “The video game industry is a place of fast-moving innovation, where player expectations are high and new ideas are paramount. Statutes written decades ago don’t specify how gaming ecosystems should operate. The laws have not changed, but their application has evolved and long-standing industry practices are no longer enough.”



It’s worth keeping in mind that the user base for a number of metaverse platforms, like The Sandbox and Decentraland, remains relatively miniscule in comparison to Fornite’s 400 million worldwide users (in the FTC’s estimation).&nbsp;



Earlier this year, <a href="https://blockworks.co/news/fortnite-developer-epic-games-gets-2b-from-sony-kirkb-to-drive-metaverse-efforts" target="_blank" rel="noreferrer noopener">Epic Games took in $2 billion from existing investors</a>, including Sony’s investment arm and KIRKBI, the family-owned investment firm behind The LEGO Group, in a bid to accelerate its metaverse ambitions.



Epic Games recently listed its first NFT-powered title, Mythical Games’ Blankos Block Party, in its gaming marketplace.



Updated Dec. 22, 2022 at 11:50 pm ET: The FTC fine of $520 million includes two separate fines: $245 million related to Fortnite&#8217;s refund system and $275 million connected to user privacy.



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The FTC Came Gunning for Fortnite. Is the Metaverse Next?

Shalini Nagarajan

<div id="highlights-block_632194b5e6fdb" class="highlights">
 <ul>
 <li>Employees were skeptical about Celsius’ comeback plan at an all-hands meeting on Sept. 8</li>
 <li>The Federal Trade Commission is looking to join the case, court filings show</li>
 </ul>
 
</div>



Celsius sparked a flurry of anxiety over liquidity issues in the crypto lending space after the company was unable to meet <a href="https://cms.blockworks.co/celsius-faces-heat-for-1-2b-balance-sheet-hole-customers-owed-4-7b/" target="_blank" rel="noreferrer noopener">$5.5 billion</a> in liabilities due to bad loans.



The lender is now putting together a restoration plan to help repay creditors and win back customers, according to a <a href="https://www.youtube.com/watch?v=40-w9r7WSKM&amp;t=72s" target="_blank" rel="noreferrer noopener">leaked recording</a> of an all-hands meeting held on Sept. 8 shared by Celsius user <a href="https://twitter.com/TiffanyFong_" target="_blank" rel="noreferrer noopener">Tiffany Fong</a>.



At the meeting, CEO Alex Mashinsky and chief compliance officer Oren Blonstein outlined a plan for “Celsius 2.0” — an ambition to switch focus to custody. It would involve re-enabling some key services, allowing users that have funds in custody to stake, swap and take loans while they’re charged fees for certain transactions.&nbsp;



The plan is code-named “Kelvin,” a unit of temperature which takes <a href="https://coolcosmos.ipac.caltech.edu/ask/298-What-is-absolute-zero-" target="_blank" rel="noreferrer noopener">absolute zero</a> — equivalent to minus 273 degrees Celsius — as its lower bound. Blonstein chose to describe it as a concept of “absolute zero trust involved.”



Both executives were met with skepticism from employees, who asked how customers would trust Celsius after initially being told they wouldn’t be charged to get their money out.&nbsp;



Celsius has previously advertised its products as being <a href="https://support.celsius.network/hc/en-us/articles/360001716618-Do-you-charge-fees-" target="_blank" rel="noreferrer noopener">fee-free</a> as part of the lender’s “unbank yourself” motto.



In response, Blonstein used Binance as an example to say that several crypto businesses make revenue from charging a transaction fee on transactions.&nbsp;



“If we’re delivering valuable services, people should be willing to pay for it,” he said.



Separately, Mashinsky indicated that bankrupt companies have the potential to rebound aggressively after successful reorganization.&nbsp;



<blockquote class="wp-block-quote">“Pepsi filed for bankruptcy twice, right? Does it make the Pepsi taste less good?” he said. “Delta filed for bankruptcy, right? Do you not fly Delta because they filed for bankruptcy? </blockquote>



Mashinsky described filing for Chapter 11 protection as “a test to see if you should exist,” adding “or are we gonna be in the dustbin of companies that were great or almost-great or great for a while, but disappear?”



The <a href="https://www.nytimes.com/2022/09/13/technology/celsius-network-crypto.html" target="_blank" rel="noreferrer noopener">New York Times</a> first reported the news.



<h3 class="wp-block-heading">Creditors are incredulous</h3>



The revival plan is just a proposal for now. It would still have to pass Celsius’ Unsecured Creditors’ Committee (UCC) before being brought to the court for approval. However, the UCC reportedly had concerns about the Kelvin proposal after meeting with executives.



Simon Dixon, founder of Bank to the Future and a Celsius creditor, <a href="https://twitter.com/SimonDixonTwitt/status/1569948807072186368" target="_blank" rel="noreferrer noopener">called out Mashinsky</a> for his claim of UCC support, and expressed skepticism over any plan with Mashinsky at the helm.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I’ll get behind any plan that makes creditors whole so I’ll hear all plans out. Having <a href="https://twitter.com/Mashinsky?ref_src=twsrc%5Etfw">@Mashinsky</a> in charge is a magnet for regulatory shutdown and financial disaster for all creditors IMO. I will remain open minded, but ignoring this reality is not the path to recovery IMHO. <a href="https://t.co/maJBsbCLn0">https://t.co/maJBsbCLn0</a>&mdash; Simon Dixon (Beware Impersonators) (@SimonDixonTwitt) <a href="https://twitter.com/SimonDixonTwitt/status/1569952032932380672?ref_src=twsrc%5Etfw">September 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Celsius’ <a href="https://cms.blockworks.co/celsius-to-file-for-bankruptcy-imminently-report/" target="_blank" rel="noreferrer noopener">bankruptcy</a> filing in July was a lesson in the risks of high-yield lending for investors. As several creditors are yet to recover their funds, the lender is working on <a href="https://cms.blockworks.co/celsius-gets-court-blessing-to-sell-its-mined-bitcoin/">monetizing </a><a href="https://cms.blockworks.co/celsius-gets-court-blessing-to-sell-its-mined-bitcoin/" target="_blank" rel="noreferrer noopener">i</a><a href="https://cms.blockworks.co/celsius-gets-court-blessing-to-sell-its-mined-bitcoin/">ts bitcoin mining business</a> to support operations. 



Celsius didn’t return Blockworks’ request for comment by press time.



As the bankrupt lender aims to turn down the heat, the case has sparked the interest of lawyers from the Federal Trade Commission, who <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174909132280000000085.pdf" target="_blank" rel="noreferrer noopener">filed with the court</a> to represent the government agency on Tuesday.



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Celsius Banks on Future With New Plan Named ‘Kelvin’

<div id="highlights-block_629ddabf61cad" class="highlights">
 <ul>
 <li>Scammers used fake investment opportunities and romance-linked fraud to trick people into crypto transfers</li>
 <li>Nearly half of the victims were targeted on Instagram, Facebook, WhatsApp and Telegram</li>
 </ul>
 
</div>



Smart contract <a href="https://cms.blockworks.co/?s=exploit" target="_blank" rel="noreferrer noopener">exploits</a> and rug pulls may be exotic, but unsuspecting crypto users are at risk of more run-of-the-mill fraud too. Since 2021, investment-related fraud and romance scams were the top two methods of defrauding individuals on social media, according to a new <a href="https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze#crypto1" target="_blank" rel="noreferrer noopener">report</a> by the Federal Trade Commission.



More than 46,000 people have collectively reported more than $1 billion in losses in crypto-related scams between the start of 2021 and the first quarter of 2022. That’s more than any other payment method — and nearly 60 times the crypto losses reported in 2018, according to the regulator.



The losses are not the result of any failure of cryptography or errant smart contracts, but old-fashioned social engineering that’s not unique to crypto. Last year, 59 million people in the US alone lost nearly $30 billion <a href="https://www.cnbc.com/2021/06/29/americans-lost-billions-of-dollars-to-phone-scams-over-the-past-year.html" target="_blank" rel="noreferrer noopener">to phone scams</a>.



The regulatory agency warned that using a social media platform while holding cryptocurrencies can be a particularly explosive mix.



<blockquote class="wp-block-quote">“Nearly half the people who reported losing crypto to a scam since 2021 said it started with an ad, post, or message on a social media platform,” the report said.</blockquote>



The top social media platforms identified in these online deceptions were Instagram (32%), Facebook (26%), WhatsApp (9%) and Telegram (7%).



An investment opportunity or offer that seems too good to be true usually is, and more than half of the losses reported to the FTC — $575 million — were related to <a href="https://consumer.ftc.gov/jobs-and-making-money/money-making-opportunities-and-investments" target="_blank" rel="noreferrer noopener">fake investment opportunities</a>.



“Investment scammers claim they can quickly and easily get huge returns for investors,” the report said. “But those crypto ‘investments’ go straight to a scammer’s wallet.”



Some people get convinced about the legitimacy of these schemes as they’re initially able to track the performance of their cryptocurrency and are able to make a small “test” withdrawal.


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="487" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png" alt="" class="wp-image-22473" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/2022-06-06-fraud-1024x487.png?w=1480 1480w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Figures based on fraud reports to the FTC&#8217;s Consumer Sentinel Network indicating cryptocurrency as the payment method. The investment related fraud category includes subcategories for art, gems and rare coin investments, investment seminars and advice, stocks and commodity futures trading and miscellaneous investments. Source: <a href="https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze#crypto1" target="_blank" rel="noreferrer noopener">FTC</a></figcaption></figure></div>


According to the FTC, <a href="https://consumer.ftc.gov/articles/what-you-need-know-about-romance-scams" target="_blank" rel="noreferrer noopener">romance scams</a> are the next most common type of crypto-related fraud. Nearly one in every three dollars of the reported losses, or $185 million, was lost to such a scam since 2021.



The regulator said sophisticated “keyboard Casanovas” allegedly entice people by laying claims to made-up wealth. They seem to offer spontaneous tips on how to get started in crypto investing before trapping the victim into sending money to a scam account.



Victims of romance scams reported a median individual loss of $10,000, the report found.



If a victim parts with cryptocurrency on fraudulent exchange platforms, imposter websites, or peer-to-peer transfers, recovery is likely to prove difficult, because transactions cannot be reversed.



People in their 30s were the most significant hit by fraud-related cryptocurrency losses. But older victims lost bigger sums, with the median amount for victims in their 70s being just under $12,000. Earlier this year, the UK’s Financial Conduct Authority <a href="https://cms.blockworks.co/fca-finds-increased-scam-reports-linked-to-crypto/" target="_blank" rel="noreferrer noopener">highlighted</a> about 3,000 reports of possible crypto-linked scams between April and September of 2021.



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