US SEC raises concerns over Coinbase providing services to Celsius

Posted: September 25, 2023

• SEC raises concerns over Coinbase acting as a distribution agent for Celsius in its bankruptcy proceedings
• The commission wants a new agreement to be drafted between both parties

The United States Securities and Exchanges Commission (SEC) filed a limited objection to Celsius Network’s bankruptcy and reorganization plan. The objection comes as “certain of the documents filed as part of the Plan supplement are inconsistent and raise concerns under the federal securities law.”

Notably, the commission, in particular, raised concerns over the American crypto firm – Coinbase’s involvement in the bankruptcy proceedings.

The SEC has filed a limited objection to the #CelsiusNetwork plan confirmation. It’s about the Coinbase terms of service/agreement with Debtor (due to Coinbase suing them for the things Coinbase would do during the distribution). https://t.co/o11949O3IU#CelsiusBankruptcy

— Daniel Frishberg (@DanielFCelsius) September 22, 2023

The problem with Coinbase

A 15 September filing disclosed the Coinbase Prime Broker Agreement, also making Coinbase a distribution agent for international customers. With this agreement, Coinbase would provide brokerage and master trading services to Celsius. However, the SEC raised an objection stating,

“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 […] (alleging, among other things that Coinbase “has acted as an exchange, broker, and a clearing agency, without registering […]”

The concerns come in light of the SEC’s charges against Coinabse. The commission sued the exchange for operating as an unregistered securities exchange, broker, and clearing agency in early June 2023.

In its objections filing, the SEC seeks the court to reject Celsius’ deal, despite the debtors claiming that the crypto exchange would not be providing brokerage services. The commission also wants a new agreement to be drafted that “accurately sets forth the arrangement with Coinbase”.  Speaking about this on X (formerly Twitter), Paul Grewal – Coinbase’s Chief Legal Officer said,

“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.“

SEC’s case against Celsius and its former CEO

After its action against Coinbase, the SEC filed a complaint against Celsius and its former CEO – Alex Mashinsky in July 2023. The commission alleged that both the firm and founder Mashinsky violated securities registration and anti-fraud laws. This included the registration of its leading services and earn interest program. The commission also alleged that both parties engaged in activities to manipulate the price of CEL tokens, since 2020.

Additionally, the commission also arrested Mashinsky, followed by the announcement. The founder was charged with seven counts including securities, commodities, and wire fraud. The founder, however, has pleaded not guilty to these charges.

The action from the authorities came a year after Celsius filed for bankruptcy in July 2022. In recent developments, the crypto consortium – Fahrenheit won the bid to acquire its assets.