SEC objects to Coinbase role in Celsius Network’s bankruptcy plan

Coinbase logo with US SEC logo in the back and US flag.

The United States Securities and Exchange Commission (SEC) has expressed concerns over the role of cryptocurrency firm Coinbase (NASDAQ:COIN) in the bankruptcy proceedings of Celsius Network, according to a filing. The SEC’s objections focus on the terms of service agreement between Coinbase and the debtor, Celsius Network. The commission has requested a new agreement that accurately outlines the arrangement between both parties.

In a filing on September 22, 2023, the SEC lodged a limited objection to Celsius Network’s reorganization plan. This followed the fourth revision of the bankruptcy plan proposed by Celsius on August 15, 2023, which has yet to be approved. The SEC’s objection stems from inconsistencies in the documents filed as part of the Plan supplement and potential violations of federal securities law.

A significant point of contention is the Coinbase Prime Broker Agreement disclosed on September 15, 2023. This agreement makes Coinbase a distribution agent for Celsius’ international customers, providing brokerage and master trading services. However, the SEC has raised concerns that these agreements overstep the bounds of a distribution agent’s services, implicating many of the issues raised in its District Court action against Coinbase.

The SEC has previously charged Coinbase for operating as an unregistered securities exchange, broker, and clearing agency in June 2023. Despite Celsius’ claim that Coinbase would not be providing brokerage services under this deal, the SEC has requested that the court reject it.

In response to these objections, Paul Grewal, Chief Legal Officer at Coinbase, stated in a post on X (formerly Twitter): “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.”

The SEC’s objections follow a complaint filed against Celsius and its former CEO – Alex Mashinsky in July 2023. The commission alleged that both the firm and Mashinsky violated securities registration and anti-fraud laws, including activities to manipulate the price of CEL tokens since 2020. Mashinsky has pleaded not guilty to these charges.

Celsius Network filed for bankruptcy in July 2022. Recently, crypto consortium Fahrenheit won the bid to acquire Celsius’ assets. The next hearing in the bankruptcy case is scheduled for October 5, 2023.