journalfront

Cryptocurrency

Failed Crypto Lending Platform Celsius CEO Pleads Guilty to Fraud

2024-12-03

In a shocking turn of events, the cryptocurrency lending platform Celsius Network has come crashing down. The founder and former CEO, Alexander Mashinsky, pleaded guilty to federal fraud charges on Tuesday, admitting to misleading customers about the business. This case serves as a stark reminder of the risks and pitfalls within the crypto industry.

Unraveling the Crypto Fraud: Celsius Network's Downfall

Section 1: The Rise and Fall of Celsius Network

New York (AP) - Once a prominent player in the crypto space, Celsius Network saw its assets purportedly grow to about $25 billion at its peak, making it one of the largest crypto platforms in the world. However, behind the scenes, a web of deceit was unraveling. Alexander Mashinsky, 58, of Manhattan, was at the center of it all. He used catchy slogans like "Unbank Yourself" to entice prospective customers, promising them that their money would be as safe in crypto accounts as in a bank. But as it turns out, this was nothing but a facade.In 2018, Mashinsky started promoting Celsius through various channels such as media interviews, his social media accounts, and the Celsius website. He even held a weekly "Ask Mashinsky Anything" session that was broadcast on the Celsius website and a YouTube channel. Employees from multiple departments noticed false and misleading statements in these sessions but were ignored.

Section 2: The Guilty Plea and Its Implications

Mashinsky entered the plea in New York federal court to commodities and securities fraud. He admitted to illegally manipulating the price of Celsius's proprietary crypto token while secretly selling his own tokens at inflated prices, pocketing about $48 million before the company collapsed into bankruptcy in 2022. In court, he admitted that in 2021, he publicly suggested there was regulatory consent for the company's moves, knowing that customers would find false comfort with that. And in 2019, he was selling the crypto tokens even though he told the public that he wasn't.U.S. Attorney Damian Williams said in a release that Mashinsky "orchestrated one of the biggest frauds in the crypto industry." He made tens of millions of dollars selling his own CEL tokens at artificially high prices, leaving his customers "holding the bag when the company went bankrupt."

Section 3: The Aftermath and Sentencing

An indictment alleged that Mashinsky's actions were widespread and had a significant impact. A plea agreement with prosecutors calls for him to be sentenced to up to 30 years in prison and to forfeit over $48 million, which is the amount of money he allegedly made by selling his company's token. Sentencing is scheduled for April 8.This case highlights the need for greater regulation and oversight in the crypto industry. It shows that even seemingly legitimate platforms can hide behind false promises and engage in fraudulent activities. Customers need to be more vigilant and do their due diligence before investing in cryptocurrencies.The downfall of Celsius Network serves as a cautionary tale for the entire crypto community, reminding us of the importance of transparency and accountability in this rapidly evolving industry.

Improved leverage and expectations for healthy growth in fiscal 2025 have played a significant role in S&P Global Ratings' decision to upgrade the rating of the parent company of ESPN and ABC Owned Stations. This development has been highly beneficial for The Walt Disney Co., as its stock has witnessed a remarkable rise of $30 per share since mid-August. The Thanksgiving holiday saw "Moana 2" smash box office records, leading S&P Global Ratings to bestow an "A" rating on Disney.

Key Factors Behind the Upgrade

Long-term earnings and cash flow guidance indicate that the company led by Bob Iger (expected to leave in 2026) is capable of accelerating earnings growth while maintaining S&P Global Ratings-adjusted leverage below 2.5x in the long term. Despite the possibility of a temporary rise in leverage upon making the final payment to Comcast Corp. for its Hulu ownership stake, it is not expected to exceed the upgrade threshold. Disney ended fiscal 2024 with S&P Global Ratings-adjusted leverage of 2.2x, and it is projected to decline further to 2.1x by the end of fiscal 2025 and reach around 2x by the end of fiscal 2026. Additionally, the company is expected to maintain FOCF to debt above 15% for at least the next few years, even as capital expenditures increase to over $8 billion annually.Last year, Disney announced a nearly doubling of capital expenditures to about $60 billion over 10 years to expand and enhance its domestic and international theme parks and cruise line capacity. S&P Global Ratings anticipates capital expenditures to rise to over $8 billion in fiscal 2025 and remain in the $7.5 billion to $8.5 billion range annually throughout the rest of the decade.After pausing share repurchases and dividend payments to reduce leverage following the 2019 acquisition of portions of 21st Century Fox Inc. and the 2020 pandemic, Disney has resumed returning cash to shareholders. S&P forecasts dividends and share buybacks totaling $4.8 billion in fiscal 2025, with approximately $3 billion in repurchases, in line with the company's guidance for 2025 share repurchases. It is believed that Disney can fund both the increased capital expenditures and the share repurchases/dividends through free cash flow, and S&P Global Ratings-adjusted leverage is likely to settle at around 2.0x.

Streaming and Experiences Driving Performance

Streaming and experiences are driving Disney's improving operating performance. This approach limits its exposure to linear TV while providing multiple scaled consumer touch points that its media peers do not possess. Disney's streaming advertising reached $3.7 billion in fiscal 2024, slightly larger than linear TV (excluding ESPN). S&P expects this to grow at a double-digit percentage rate in the coming years. The company's global position in streaming is sustainable due to its brand and IP, particularly its children-focused content.

Linear TV Operations and Challenges

Disney's linear TV operations are not immune to ongoing industry secular trends. While its smaller scale and greater dependence on the ABC broadcast network and sports programming temper the declines compared to general entertainment networks, S&P warns that linear TV revenues and cash flow are expected to continue to decline at a 9% and mid-teens percentage annual rate, respectively. The company is managing programming and selling, general, and administrative (SG&A) costs in line with revenue declines, resulting in 200-basis-point annual declines in margins. On the other hand, the sports segment is expected to see relatively stable revenues and mid-single-digit percentage declines in operating income as programming costs continue to rise.

Disney's Competitive Position

With Comcast and Paramount still building out their Peacock and Paramount+ OTT platforms without affecting their respective broadcast and cable TV networks, S&P believes Disney remains the best positioned legacy media company. It is emphasized that some legacy U.S. media and entertainment companies may struggle to successfully pivot from a linear TV-dominated ecosystem to one where streaming is the primary distribution medium. This could be due to weak assets, overdependence on linear TV, overexposure to secular trends, or strategic missteps. However, Disney stands out with its unparalleled collection of iconic brands, the breadth and depth of its film and television studios, global destination theme parks, global distribution footprint including diverse global DTC streaming services, and broad diversity in its media and entertainment businesses. In S&P's view, Disney is the preeminent media company for monetizing IP across its entire business portfolio.