I’m so glad I never went to law school. The thought didn’t cross my mind, but what a fucked profession. Attornies get a bad reputation, work long hours, and charge people a shit-load of money for their services. It’s like being a white-collar police officer—high stress to do a job that few people appreciate unless it directly impacts them.

Crypto lawyers will have a massive payday from all the industry's corruption. The lack of government oversight in the centralized crypto exchange and lending platform arenas allowed millions of investors to get their funds stolen. And these CEO profiteers responsible for the insane thievery and corruption aren’t held to the same legal standards as ordinary people.

The main man in the media crosshairs is Sam Bankman-Fried (SBF), who went from running a company worth multi-billions of dollars one week to being insolvent and in the hole for billions of dollars the following week. SBF was extradited from the Bahamas to the US and is facing trial. However, he was granted bail and had a lot of freedom because he’s been accused of tampering with FTX funds and communicating with people who may testify against him.

One other CEO that stole billions from its clients is Alex Mashinsky. During his tenure at Celsius, he misappropriated funds from 1.7 million clients. Altogether, Celsius has a $1.2 billion hold in its balance sheets. Meanwhile, Mashinsky enjoys his freedom and can spend the millions of dollars he earned on whatever he pleases.

If you are like me, you are probably wondering, “why does one criminal get off scot-free while the other may be the (deserved) fall man for everything corrupt in crypto?” As stated earlier, I’m not a lawyer, so I can’t provide the legal reasoning for why one is being prosecuted while the other isn’t. However, I can share my suspicions about why one is under the microscope while the other has been given a pass.

What Mashinsky and SBF have in common

Both men led crypto platforms that resulted in customers losing billions of dollars due to the misappropriation of funds. For example, Mashinsky’s company issued uncollateralized loans using clients’ deposits. It has also been reported that he traded the client’s funds in a hail-mary attempt to make up for the firm’s missing money.

Further, Mashinsky was an outspoken voice in the crypto community. He bashed the traditional banking system and had a penchant for lying to everyone. Unfortunately, Mashinsky has blocked his tweets, but here’s a quote of what he said to the Twitter community.

Unfortunately, as we all know now, nothing could have been further from the truth. Celsius depositors’ funds were anything but safe, and the company suffered tremendous losses.

I’m unsure if lying and misrepresenting your firm’s solvency is a crime. But I’m pretty sure that manipulating the market is a crime. Mashinsky and his cohorts conveniently withdrew most of their Celsius deposits before they froze everyone else’s assets. Further, evidence exists that Mashinsky and others manipulated CEL token purchases to coincide with their CEL token sales. Mashinsky sold $68.7 million worth of CEL tokens between 2018–2022.

Sam Bankman-Fried ran his scam a little differently than Mashinsky. But he followed similar paths in his playbook. SBF ran FTX, one of the largest centralized crypto exchanges. Depositors’ funds were “loaned” to FTX’s sister company, Alameda Research. Unfortunately, Alameda didn’t do well allocating the funds they received from FTX.

Like Mashinsky, SBF was an outspoken champion in the crypto industry. But, unfortunately, he was fine with lying to everyone about their funds' safety.

And there are reports that between FTX and Alameda, they were able to manipulate the prices of several tokens in the Solana ecosystem. This is because they held such a large proportion of the tokens that they could build false scarcity.

Both men are scumbags. They both knew what they were doing. They both knew it was wrong. And they both profited off their client’s naive trust. But only one of them is standing a trial. How come?

*Disclaimer*

I want to reiterate that none of this is based on legal knowledge and is strictly conjecture. Imagine I’m drinking a cup of coffee with you and discussing why SBF is getting so much heat while Mashinsky is living large with his millions. In other words, these are my opinions.

Theory #1

While it’s apparent to anyone who had funds in custody by either of these companies that their funds were stolen, the small print on the terms and conditions differed.

FTX was an exchange. Traders have a belief and right to withdraw their funds in custody on the exchange. FTX’s terms and conditions stated: “(FTX) does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading.”

Even my non-legal education tells me what SBF and his team did was a clear breach of contract. Customers who read the terms would believe their funds were being held and not used for the firm’s trading.

Meanwhile, a judge has already ruled that deposits in Celsius were handed over to Celsius per their terms and conditions.

“The Court concludes, based on Celsius’s unambiguous Terms of Use, and subject to any reserved defenses, that when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates (the ‘Estates’),”Glenn wrote.

So, the devil is in the details. And Celsius included in their terms that funds in the earn account did not belong to the depositors.

I’m not saying that Celsius represented themselves as investing in their client’s behalves, but their terms don’t bind them to return depositors' funds the same way that FTX did. So, legally, going after SBF is much easier, and prosecutors will go after the low-hanging fruit.

Theory #2

Now, it’s time for me to go more into the tinfoil hat arena. Most of the funds in Celsius were retail clients’ funds. By retail, I mean people like you and me. We are small fish, but combined, we provided Celsius with billions in capital. On the other hand, FTX dealt with more institutional money.

Is it possible that it’s ok for retail to take a beating, but when institutions are being conned, that is when the legal hammer is unleashed? I think it’s easy to argue that prosecutors are more interested in protecting and making an example of the bad guys who are affecting their buddies. When retailers make a mistake, it’s because of greed. But when institutions make a mistake, it’s because of fraud.

Theory #3

The government wants to make an example for the entire crypto industry. Could the government view crypto as a threat to central bank monetary dominance? FTX foolishly spent millions in Super Bowl ads purchasing naming rights to arenas. Further, SBF and Alameda donated millions to government officials.

Are prosecutors in a position where they have to go after SBF because he tarnished their name and reputation? For example, Biden’s second-largest donor during the 2020 presidential campaign was Sam Bankman-Fried. And SBF reportedly worked with SEC head Gary Gensler on creating crypto regulations.

Could the government have a vendetta against SBF for making them look foolish and inept? Mashinsky committed fraud, but he didn’t involve public officials and wasn’t trying to play nice with the establishment.

Going after FTX paints the picture that crypto is dangerous. They want to send the narrative: “Money invested in crypto is unsafe. Don’t be an idiot like people who had money on FTX and lost it all. Fraudsters and charlatans are running this space. Keep your money in banks and the stock market.”

Key Takeaways

I believe that, like SBF, Mashinsky committed crimes. Perhaps the terms Celsius used provide more protection, but that doesn’t mean he didn’t misrepresent the company or misuse investors’ funds. Further, Mashinsky lied to investors and manipulated the CEL token at first glance.

But the Sam Bankman-Fried story is much juicier and more dramatic than Mashinsky and Celsius. It involves fallen heroes, sexual relationships, Stanford professors, drugs, and video games. As a result, the media can create a much larger, more sensational storm about FTX than Celsius. And FTX impacted large institutional players, politicians, and civil employees, who deserve their retribution.

What do you think? Should Mashinsky be allowed to keep his millions while depositors get to wait to see if they get pennies on their dollars? Is SBF being unfairly targeted in relation to other criminals in this space? Does any of the fault lie in the government not regulating a multi-trillion dollar industry? Share your theories, thoughts, or insights in the response section.

https://scottdebevic.medium.com/should-the-colorful-celsius-ceo-be-cellmates-with-ftxs-ceo-f5460f97d762