SEC Opposes Coinbase’s Involvement in Celsius Network Bankruptcy Plan

The United States Securities and Exchange Commission (SEC) has raised concerns regarding the involvement of cryptocurrency exchange Coinbase in the bankruptcy proceedings of Celsius Network. The SEC’s objections pertain to the service agreement established between Coinbase and Celsius, urging for a revised agreement that better clarifies the relationship between the two entities.

On September 22, 2023, the SEC issued a limited objection to Celsius Network’s reorganization plan, which follows Celsius’ four revisions of the bankruptcy plan submitted on August 15, 2023, still awaiting approval. The SEC’s concerns highlight discrepancies in the filed documents related to the plan and possible breaches of federal securities regulations.

A major issue is the Coinbase Prime Broker Agreement revealed on September 15, 2023. Under this agreement, Coinbase acts as a distribution agent for Celsius’ international customers, providing brokerage and master trading services. The SEC contends that this arrangement exceeds the typical scope of a distribution agent’s services and raises issues relevant to the SEC’s prior legal actions against Coinbase.

Previously, the SEC accused Coinbase of functioning as an unregistered securities exchange, broker, and clearing agency in June 2023. Although Celsius has asserted that Coinbase would not offer brokerage services under this arrangement, the SEC has called for the court to dismiss it.

In light of these objections, Paul Grewal, Chief Legal Officer at Coinbase, expressed his views on social media, stating, “Coinbase is proud to engage with Celsius to distribute crypto back to its customers. I wonder, why would the SEC object to a trusted US public company taking on this role? We look forward to addressing this with the bankruptcy court and undertaking our important role to make Celsius customers whole.”

These objections come after the SEC filed a complaint in July 2023 against Celsius and its former CEO, Alex Mashinsky, alleging violations of securities registration and anti-fraud laws, including attempts to manipulate the price of CEL tokens starting in 2020. Mashinsky has pleaded not guilty to these allegations.

Celsius Network entered bankruptcy in July 2022, and recently, the crypto consortium Fahrenheit successfully bid to acquire Celsius’ assets. The next hearing related to the bankruptcy case is set for October 5, 2023.