Tensions between Coinbase and the United States Securities and Exchange Commission (SEC) have escalated, primarily due to concerns raised by the SEC regarding Coinbase’s role in the bankruptcy plan of Celsius Network.
Celsius Network has sought court approval for a set of agreements with Coinbase to facilitate the distribution of digital assets to its international customers, as outlined in a filing by the SEC on a Friday.
This ongoing dispute between Celsius Network and the SEC is further complicated by the SEC’s own lawsuit against the Coinbase digital asset exchange.
SEC Objects to Celsius Plans
The SEC, in a filing made on September 22nd, registered its objection and reserved certain rights concerning Celsius Network’s latest proposed restructuring plan. This plan, which represents the fourth revision since the initial proposal in March, was submitted on August 15th but has yet to receive approval from the court.
“Certain documents filed as part of the plan supplement are inconsistent and raise concerns under the federal securities law.
The Coinbase Agreements go far beyond the services of a distribution agent, contemplating brokerage services and master trading services that implicate many of the concerns raised in the SEC’s District Court action against Coinbase.”
Celsius Network Reorganization Plan
Celsius Network’s reorganization plan included a supplemental proposal for a distribution services agreement with Coinbase, which Celsius aimed to keep confidential by filing it under seal.
In response, the SEC lodged an objection, expressing concerns that this agreement could potentially require Coinbase to extend its services beyond those of a standard distribution agent. This raised the possibility of Coinbase being drawn into the issues outlined in the SEC’s civil lawsuit, initially filed in June.
Related reading : Coinbase Demands Answers From SEC In Response To Recent Lawsuit
In June 2023, SEC initiated a lawsuit against Coinbase, alleging that it had unlawfully offered unregistered securities.
According to the Celsius Network’s reorganization plan, the debtors have explicitly stated that their intention is not to engage Coinbase in providing brokerage services to them, despite the language within the Agreements that may suggest otherwise.
Nonetheless, the SEC argued that the court should not be asked to approve an agreement when essential terms are either absent or inconsistent. This objection underscores the need for clarity and precision in agreements of this nature, especially in a context where regulatory compliance and legal implications are of paramount concern.
In the filing, SEC urged the court to reject Celsius Network’s proposed deal, even though the debtors have asserted that the exchange will not be engaged in providing brokerage services. Additionally, the commission is calling for the drafting of a new agreement that accurately and transparently outlines the terms of the arrangement with Coinbase.
Coinbase Stance on SEC Objection
Coinbase’s Chief Legal Officer Paul Grewal stated on X (former Twitter) that Coinbase takes pride in collaborating with Celsius to facilitate the distribution of digital assets to customers. He also expressed curiosity about the SEC’s objection to a “trusted U.S. company” assuming this responsibility and anticipated resolving the matter in bankruptcy court while emphasizing their commitment to assisting Celsius customers.
What Happened to Celsius?
In July 2023, following its legal action against Coinbase, the SEC filed a complaint against Celsius Network and its former CEO, Alex Mashinsky.
The commission accused both the company and Mashinsky of violating securities registration and anti-fraud laws, specifically in relation to their leading services and earn interest program, as well as alleged activities to manipulate the price of CEL tokens since 2020.
Subsequently, the commission also had Mashinsky arrested, charging him with seven counts that included securities, commodities, and wire fraud. Notably, Mashinsky has entered a plea of not guilty in response to these charges.
These developments unfolded a year after Celsius filed for bankruptcy in July 2022.
In recent updates, a digital asset consortium known as Fahrenheit successfully acquired the assets of Celsius Network through a bidding process.