The United States Securities and Exchange Commission (SEC) has recently objected to the inclusion of Coinbase in the bankruptcy and reorganization plan proposed by crypto firm Celsius Network. Last week, Celsius revealed its intention to utilize Coinbase for the distribution of digital assets to its international customers, seeking approval from the court. However, the SEC argues that further examination of this agreement is necessary, as it raises concerns related to Coinbase’s ongoing legal issues with the commission. This article critically analyzes the SEC’s objection and its potential implications for Celsius and Coinbase.
According to the SEC’s filing, the proposed agreement between Celsius and Coinbase extends beyond the scope of a distribution agent, encompassing brokerage and master trading services. This raises concerns for the SEC, given its existing lawsuit against Coinbase accusing the company of operating as an unregistered securities exchange. The commission contends that Coinbase’s involvement in the proposed plan could lead to additional legal disputes, jeopardizing the interests of Celsius and its customers.
The SEC also highlights the existence of an undisclosed agreement between Celsius and Coinbase, which has not been shared with SEC staff. The commission argues that this agreement must be presented to the court for transparency and proper evaluation. By raising these objections, the SEC aims to ensure that Coinbase’s role in Celsius’ bankruptcy plan is adequately addressed and that any potential conflicts of interest are resolved.
Paul Grewal, Coinbase’s chief legal officer, expressed his confusion regarding the SEC’s objections. He stated that Coinbase is proud to collaborate with Celsius and facilitate the distribution of crypto assets to its customers. Grewal questions the SEC’s rationale for objecting to a trusted US public company like Coinbase assuming this role. He believes that Coinbase’s experience and credibility in the industry make them well-suited for this responsibility. Coinbase intends to address the SEC’s concerns through the bankruptcy court and fulfill its role in ensuring Celsius customers’ interests are protected.
Celsius filed for bankruptcy in July 2022, and in July 2023, the SEC accused the company and its former CEO, Alex Mashinsky, of violating securities registration and anti-fraud laws. The SEC’s allegations state that Celsius engaged in fraudulent and unregistered sales of crypto asset securities, provided false information to investors about its financial health, and manipulated the price of its native token, CEL, dating back to 2020. Since March, Celsius has been working on a restructuring plan to expedite repayments to its creditors. However, legal challenges persist, hindering the company’s progress. The bankruptcy court recently granted Celsius’s request to send digital ballots to creditors in October for voting on the restructuring plan. Nevertheless, the next hearing in the bankruptcy case is scheduled for October 5th.
The SEC’s objection to Celsius Network’s proposal to involve Coinbase in its bankruptcy plan signifies potential hurdles for both companies. The SEC’s concerns regarding Coinbase’s role, particularly its involvement in brokerage and master trading services, are rooted in its ongoing lawsuit against the cryptocurrency exchange. While Coinbase contends that it is well-qualified to undertake this responsibility, the SEC emphasizes the need for transparency and disclosure to safeguard the interests of Celsius and its customers. As the bankruptcy case proceeds, it remains to be seen how Celsius and Coinbase will address these concerns and reach a resolution beneficial to all parties involved.
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