Recently, the United States Securities and Exchanges Commission (SEC) has raised issues related to the role of Coinbase, a prominent American cryptocurrency firm, in the bankruptcy and reorganization proceedings of Celsius Network. The SEC’s concerns revolve around Coinbase providing services to Celsius, particularly acting as a distribution agent.
SEC’s Objection to Coinbase’s Involvement
The SEC’s objection was triggered by certain inconsistencies and concerns under federal securities law, found in the documents submitted as part of Celsius Network’s reorganization plan. Specifically, the commission expressed apprehension over the Coinbase Prime Broker Agreement, disclosed in a September 15 filing. This agreement made Coinbase a distribution agent for Celsius’ international customers, offering brokerage and master trading services.
However, the SEC argued that these agreements extended beyond the simple services of a distribution agent, implicating many of the issues raised in the SEC’s District Court action against Coinbase. The commission has previously charged Coinbase for operating as an unregistered securities exchange, broker, and clearing agency.
SEC’s Request for a New Agreement
In light of these concerns, the SEC has requested the court to reject the existing deal between Celsius and Coinbase, despite the claim that Coinbase would not be providing brokerage services. The commission is urging for a new agreement to be drafted that “accurately sets forth the arrangement with Coinbase”.
Responding to this, Paul Grewal, Coinbase’s Chief Legal Officer, expressed on social media that Coinbase is proud to engage with Celsius to distribute crypto back to its customers. He questioned why the SEC would object to a trusted US public company undertaking this role, and expressed eagerness to address the issue with the bankruptcy court.
SEC’s Lawsuit Against Celsius and its Former CEO
These events follow the SEC’s lawsuit against Celsius and its former CEO, Alex Mashinsky, alleging violations of securities registration and anti-fraud laws. The commission also accused both parties of engaging in activities to manipulate the price of CEL tokens since 2020. Mashinsky was arrested and charged with seven counts including securities, commodities, and wire fraud, but has pleaded not guilty.
This legal action came a year after Celsius filed for bankruptcy in July 2022. Recently, the crypto consortium Fahrenheit won the bid to acquire Celsius’ assets.
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