Jonathan Ohring, a lawyer for Mr. Mashinsky, said the Celsius founder “vehemently denies the allegations.” It was not immediately clear who represented Mr. Cohen-Pavon. Prosecutors said Mr. Cohen-Pavon, an Israeli citizen, was abroad and was not arrested.
Mr. Mashinsky’s arrest adds to a growing list of crypto executives who have faced intense scrutiny from law enforcement since the market crashed last year. In December, Sam Bankman-Fried, the founder of the failed FTX exchange, was arrested on fraud charges. In March, federal agents searched the home of Jesse Powell, the founder of Kraken, the second-largest U.S. exchange. And in June, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, was sued by the S.E.C. He is under criminal investigation.
After its launch in 2018, Celsius quickly grew in size as all crypto assets soared in value — especially during the pandemic, when investors and speculators flush with cash poured into crypto.
Investors in Celsius, like customers of FTX, Binance and other crypto firms, all came to believe they were putting money into world-changing assets destined to shoot up in price. Mr. Mashinsky and some of his colleagues did everything in their power to convince Celsius customers that was the case, authorities said.
The company marketed annual yields as high as 18 percent, dwarfing the amount of interest that traditional banks offer. “That’s like going to the Olympics and getting 15 medals in 15 different fields,” Mr. Mashinsky once said.
Celsius took its product to market at a time when traditional banks were paying little interest on savings accounts and money market funds, making the firm highly attractive to investors seeking higher than normal yields.
But Celsius never explained in detail how it generated those huge yields. In public comments, Mr. Mashinsky repeatedly claimed that the firm eschewed risky practices, like lending out funds without requiring collateral. In reality, Celsius made millions of dollars in loans that were not backed by any collateral, according to the S.E.C.
