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Newsletter: Celsius’ Alex Mashinsky pleads guilty to fraud, some Tornado Cash sanctions are overturned, and tech billionaires complain about “debanking”.

https://www.citationneeded.news/issue-71/

#crypto #cryptocurrency

Issue 71 – (Crypto) banks are not your friends

Molly White (Citation Needed)
#crypto #cryptocurrency
Molly White
Former Celsius CEO Alex Mashinsky entered a plea deal in his criminal fraud and market manipulation trial two months before he was set to face trial.

#crypto #cryptocurrency
The trial was set for late January, and I was curious about how Mashinsky would approach it. Mashinsky is sort of your classic conman, relying on his charisma and ability to talk in circles to pass off his often highly exaggerated pronouncements, if not blatant lies — like claiming to have invented decentralized finance, VoIP, and Uber.3 The combination of mendacity and narcissism reminds me of Sam Bankman-Fried, who remained convinced of his ability to talk his way out of his fraud charges until — and perhaps after — his conviction and sentencing. Their similarities made me wonder if Mashinsky might also take the stand in his own defense. Mashinsky seems to have proven more willing than Bankman-Fried to listen to the advice of his lawyers, and agreed to this plea deal soon after failing to have two of the charges against him dismissed before trial [I70]. In exchange for a guilty plea to two of the seven charges, commodities fraud and securities fraud, he will forfeit $48 million and face a maximum sentence of 30 years in prison — though he’s likely to get less.
#crypto #cryptocurrency
Molly White
As someone who writes a lot about crypto frauds, I see a wide range of reactions to them. One unfortunately common reaction is to blame the victim, dismissing them as crypto degens chasing impossible returns. Reality, as it so often is, is a lot more complicated.

#crypto #cryptocurrency
As someone who writes a lot about crypto frauds, I see a wide range of reactions to them. One unfortunately common reaction is to blame the victim: to say they were greedy for chasing sometimes unbelievably high returns, or that they should have known the risk, or that they somehow had it coming for choosing to put money into crypto. People commonly stereotype those who hold crypto as archetypical “crypto bros”: young, braggadocious trolls trying to get rich quick by being early enough to a pump-and-dump scheme that they can later tell everyone else to “have fun staying poor” from their superyachts. Reality, as it so often is, is a lot more complicated. Shortly after Celsius declared bankruptcy, Celsius customers began writing letters to the bankruptcy judge, telling their stories and explaining how they came to have money in Celsius, and pleading for him to do everything in his power to return their assets. I was struck by the diversity of the writers: young people to retirees; Americans, Europeans, and people in developing countries; some who started with a ton of money to put into crypto and others who scraped together their portfolios a dollar at a time. Some were financially savvy — the types of people you might expect to have “known better” — others had no idea what they were doing, but were convinced to get into crypto by family or other trusted individuals. Many believed what Celsius and Mashinsky were saying, and that the promises had to be true because US regulato
Mashinsky, who engaged directly with customers via weekly video “ask me anything” sessions and even one-on-one phone calls, was viewed more as a trusted friend or financial adviser by many, who really believed him when he said that he wanted everyone to be able to grow wealthy together using his platform, rather than lose money to banks and other financial institutions that he portrayed as the enemy. Some recognized and accepted the volatility risk inherent to cryptocurrencies like bitcoin and ethereum, but didn’t think there was a risk that the cryptocurrencies they owned might disappear entirely.
Others avoided volatile tokens, instead opting to keep their money in dollars or dollar-denominated stablecoins like USDC. They believed their Celsius account was essentially a (very) high yield savings account, and some even believed that it had the same types of protection — including FDIC depository insurance — as traditional banks. I am a retired Dutch citizen. Like many others i never thought of transferring all my pension savings as an investment (as Celsius seems to be calling it suddenly after filing for Chapter 11) but from one savings account to another… Also most of us — elderly; risk avoiding depositers — deposited in stable coins because at our age, one can’t speculate on highly volatile assets such as crypto currencies. Many of us — as we are not able to access our savings — can’t now pay for medium or bigger ‘calamities’ in our households, unless that is why we did set aside our savings for. Others didn’t make assumptions, but instead relied on Mashinsky’s own promises that the company held a $750 million insurance policy for its deposits, and that it didn’t engage in unsecured lending — both of which turned out to be lies. They believed Mashinsky when he said it was impossible for customers to lose their deposits. Much of my life’s savings are currently held hostage on the Celsius platform. Alex Mashinsky week after week promised the community that our funds were safe and not being used in any risky lending. Every week during his AMA’s he promised that Celsi
#crypto #cryptocurrency
Molly White
Even as we reflect on Celsius and the massive failures of regulators, politicians are boasting about plans to hobble regulators even further. If they are successful, I fear countless more people will continue to rely on regulators even in their absence, and be ruined because of it.

#crypto #cryptocurrency
While some say that people just have to be on high alert at all times and in every interaction for possible scams, the reality is that most people just don’t expect companies to lie to their faces — particularly US-domiciled companies that they expect to be under the watchful eye of regulators. Most people don’t think twice about whether the bank they’re signing up with is likely to collapse — and many people who encountered Celsius didn’t understand that Celsius was meaningfully different from a bank. Even as we reflect on Celsius and the massive failures of not just financial regulators, but regulators like the FTC who are meant to prevent deceptive advertising, politicians are boasting about plans to hobble regulators and make them even less effective in fulfilling their mandates. Should they succeed in these plans, perhaps some will react by putting their shields up, adopting the degree of suspicion nearing paranoia that may be required in an every-person-for-themselves world without adequate regulators. More likely, countless more will continue to rely on regulators even in their absence, and be ruined because of it.
#crypto #cryptocurrency
Molly White
The Fifth Circuit overturned some sanctions against Tornado Cash, determining that truly immutable smart contracts cannot be sanctioned. I’m not sure this will meaningfully change the effort to sanction the mixer, and it may actually make things worse for blockchain operators.

#crypto #cryptocurrency #TornadoCash
A Fifth Circuit ruling overturned the sanctions against Tornado Cash cryptocurrency mixer smart contracts, imposed by the United States Treasury Department’s Office of Foreign Assets Control (OFAC) in August 2022. The court opined that the smart contracts that comprise the Tornado Cash cryptocurrency tumbler are "not property because they are not capable of being owned", and thus cannot be sanctioned by OFAC.16 The ruling was carefully limited to the specific Tornado Cash smart contracts, which underwent a trusted setup ceremony involving 1,100 participants to make around twenty of the service’s smart contracts permanently immutable.c Unlike many smart contracts, these Tornado Cash contracts truly cannot be modified or controlled in any way (short of, say, changing how Ethereum works), and the court decided that this means they cannot be sanctioned. This verdict has been celebrated by crypto enthusiasts who felt that OFAC’s sanctions were an overreach, but if it is a victory, I’m not sure it’s a decisive one. For one, I’m not really sure it’s a “crypto” vs. “anti-crypto” fight to begin with, though many in the crypto industry have certainly portrayed it as one. It seems to me that the Fifth Circuit is saying that OFAC can’t sanction a program — that is, the lines of code telling a computer how to perform an action — and that you have to sanction a service that runs that program, or perhaps more precisely: an individual or business that runs a service that runs the program.
But “you can’t sanction this Tornado Cash smart contract” and “you can’t sanction Tornado Cash” are two very different statements, and the Fifth Circuit has said the former, not the latter. I suspect that OFAC will continue to pursue sanctions against Tornado Cash, and the question then becomes how those sanctions are imposed. I think one very real possibility is that OFAC says, “fine, if we can’t sanction the code, we’ll sanction the operators of the computers that run the code” — that is, the relays and validators that accept transactions involving the Tornado Cash service. Already, more than half of blocks added to the Ethereum blockchain are being created with relays that censor transactions involving sanctioned wallet addresses,17 by validators that have taken a cautious approach when it comes to the rather muddy water around blockchain sanctions and who can be prosecuted for violating them. Further development of these legal theories could stand to make it much more challenging, not to mention legally risky, to run an Ethereum validator. There’s also, of course, the possibility that the Treasury Department will look to Congress to clarify its authority when it comes to smart contracts. While this is certainly a crypto-friendly Congress, I’m not sure if it’s so crypto friendly that it will effectively greenlight sanctions violations so long as they happen via cryptocurrency rails. (But hey, I’ve been wrong before.)
#crypto #cryptocurrency #TornadoCash
Molly White
Shady crypto businessmen are already using Trump’s crypto project to funnel money to him, with Justin Sun “investing” $30 million to land an “adviser” role. That should be helpful as he seeks to get out of his various lawsuits and alleged investigations.

#crypto #cryptocurrency #USpol #USpolitics
Justin Sun Pro tip: If you’re one of the shadiest players in the cryptocurrency industry and want to avoid mainstream press attention on your $30 million bribe to the US president-elect via his cryptocurrency grift, just spend another $6 million on a concept art piece involving a real banana, and eat it.d That stunt will land you no fewer than five New York Times articles (plus a letter to the editor) in the span of eight days, with not a single mention of the Trump contribution. I will give his backstory as briefly as I can, but I’m afraid it won’t be very brief. In 2017, Chinese citizen and then-resident Justin Sun launched an ICO for his Tron project, raising $70 million days after China banned ICOs, and then fled the country. He bought BitTorrent and tried to turn it into a cryptocurrency company by merging it with Tron, shocking BitTorrent executives who realized that Sun’s “market making” operations were just blatant insider trading. He did another ICO, this time shopping for a lawyer who would agree to write a letter he hoped would shield him from liability if he was later sued by the US SEC (and he was [W3IGG]). He bought the Poloniex cryptocurrency exchange from Circle, after their attempt to turn it from “shitcoin casino numero uno” (as per a former employee) into a legitimate operation failed upon the realization that the lax standards were the whole selling point. Sun promised to return it to its original anything-goes glory, at one point screaming at an employee
Justin Sun has since amassed an even larger collection of companies, many of which he pretends he doesn’t own or control. These include the Huobi exchange (which he rebranded to HTX), BitGlobal, and the TrueUSD stablecoin project. In September 2023, Huobi/HTX was hacked for $8 million [W3IGG]. In October 2023, TrueUSD either lied about having no affiliation with a token called $TEURO, or the TrueUSD deployer was compromised [W3IGG]. In November 2023, Poloniex was hacked for over $120 million [W3IGG]. Less than two weeks later, Huobi/HTX and its Heco Chain project were hacked for $115 million [W3IGG]. In May 2024, Crypto Critics Corner put out an episode presenting a rather convincing argument that Justin Sun is insolvent. They also outlined the incredible shadiness around his companies’ “proofs of reserves”, including the fact that multiple of his companies seem to be counting the same pool of assets as reserves.23 The crypto community distrusts Sun so much that an August announcement that BitGlobal (and thus Sun) would be helping to manage custody for wrapped bitcoin (WBTC) caused a mass exodus from the token. MakerDAO enthusiastically voted to stop accepting WBTC as collateral (before changing their minds after assurance that Sun didn’t have as much influence over WBTC management as they initially thought). Coinbase announced their own wrapped bitcoin product to use instead, and delisted WBTC. Kraken also announced a wrapped bitcoin product.
So all this to say: who better for Donald Trump’s World Liberty Financial to bring on as its newest “adviser”? All it took was Sun’s purchase of $30 million worth of WLFI tokens,e which appears to be about as blatant an attempt to get out of the SEC’s crosshairs as the election spending by Coinbase, Ripple, and others. I’ve mentioned WLFI’s disappointing sales in previous issues [I68, 69, 70], and indeed the project had only sold around $20 million worth of the WLFI tokens in total until Sun came along, so the $30 million purchase certainly caught Trump’s attention. World Liberty Financial announced his advisory position in a tweet that described Sun, as is his preference, as merely “an advisor to HTX” and “a supporter of BitTorrent”. It played up his attendance of the University of Pennsylvania, which would've seemed like a bizarre thing to mention if it wasn’t so clear that it was an attempt by WLFI to downplay that Sun is a Chinese national.24 Now, Sun is telling reporters: “In terms of the friendly level [for] the crypto business, I think we could even say the best [jurisdiction] is the U.S.“25 He’s certainly hoping to make it so, especially for his incredibly sketchy brand of “crypto business”.
#uspol #crypto #cryptocurrency #uspolitics
Molly White
Trump is reportedly considering blockchain advocacy group founder Perianne Boring for the role of CFTC chair. She has promised to “make the U.S. the crypto capital of the world”, and her background is as a TV anchor at a branch of the Russian state-owned RT News.

#crypto #cryptocurrency #USpol #USpolitics
Trump is also reportedly considering another member of The Digital Chamber for CFTC chair: founder and CEO Perianne Boring.27 In my recent video on the crypto industry’s election spending, I quoted her statement that “The Crypto Voter Bloc has made its voice heard, and we now have a once-in-a-generation opportunity to make the U.S. the crypto capital of the world.”28 I didn’t realize at the time that she might have meant she would do so by taking over the agency that the industry hopes will be made its primary regulator, and then ensuring its already limited resources to go after crypto malfeasance are spent on nothing of the sort. Her other credentials include executive producer on a movie called God Bless Bitcoin, which “interviewed bitcoin experts and religious leaders to explain how bitcoin is a new money that would allow everyone to use the gifts God gave them”, and as a television anchor on the American branch of the Russian state-controlled RT news network. In other words, she is highly qualified for the role. Other rumored candidates in the running for the position are one of two current CFTC Commissioners, Caroline Pham and Summer Mersinger. Both have been friendly to the cryptocurrency industry, but have more traditional backgrounds in law compared to Boring.
Molly White
Trump’s confirmed pick for SEC Chair is more of a conventional pick, as an ex-SEC Commissioner. However, he’s spent a substantial portion of his time since leaving the agency as an adviser to Boring’s crypto advocacy group.

#crypto #cryptocurrency #USpol #USpolitics
Molly White
Finally, crypto and other tech executives got to talking about “debanking” this week: the word they’re using for when their predatory fintech and crypto platforms are deemed too risky by banks (and not to be confused with actual discriminatory debanking).

#crypto #cryptocurrency
Tech bigwigs’ favorite word recently has been “debanking”. It all kicked off with Marc Andreessen’s appearance on Joe Rogan’s show, which at some point morphed into a series in which Joe Rogan just makes this face [photo of Joe Rogan with very raised eyebrows and his mouth slightly agape] and says “whoa” for several hours at his disgustingly wealthy and powerful guests as they complain about all the ways they’re being disadvantaged and discriminated against.
“Debanking” refers to when a bank shuts down a person’s (or company’s) account, or denies them when they try to open one. Andreessen also spoke about “Operation Chokepoint”, an Obama-era initiative to scrutinize banks doing business with sectors at high risk for money laundering, including firearms. The initiative formally ended in 2017. Debanking is a real challenge for those affected by it. In particular, sex workers are regularly debanked — even those who operate in the completely legal zones of sex work like pornography or erotic dance.31 Companies in those areas also face banking access issues, as demonstrated by the events that led up to OnlyFans announcing (and then quickly rescinding) a ban on adult content.32 Similar issues have plagued the cannabis industry, and more recently, pro-Palestine activists who have lost access to financial services on platforms like Venmo and GoFundMe when trying to aid those in Gaza.
However, “Operation Chokepoint” has also become a popular conservative hobbyhorse, and the true history of the program’s scale, purpose, impact, and ongoing existence is heavily exaggerated. Much of the exaggeration was seeded by the gun lobby, which pushed overblown claims to portray a narrative where Democratic lawmakers and bankers extrajudicially discriminated against gun owners and dealers.33 In February 2023, bitcoiner and venture capitalist Nic Carterf published an article in Pirate Wiresg titled “Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs”. Its subtitle, “detailing the Biden Admin’s coordinated, ongoing effort across virtually every US financial regulator to deny crypto firms access to banking services”, laid out the thesis, which he rather grossly decides constitutes “redlining”. Andreessen went even further to blame the Consumer Financial Protection Bureau (CFPB), an agency established post-financial crisis to supervise a broad range of financial firms (including banks, fintechs, lenders, and so on). He even tried to pin the entire 2022 crypto collapse on “debanking”, and not, oh I don’t know, the massive fraud among companies that were leveraged up to their eyeballs. These debanking gripes — echoed after Andreessen’s Rogan appearance by other cryptocurrency and fintech executives sharing their “debanking stories” — are an egregious attempt by those profiting from predatory financial practices to
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