SEC Challenges Coinbase's Role in Celsius Network Bankruptcy

SEC's Concerns Over Coinbase's Role

The United States Securities and Exchange Commission (SEC) has raised objections regarding the involvement of cryptocurrency firm Coinbase in the bankruptcy proceedings of Celsius Network. The primary issue lies in the terms of service agreement between Coinbase and Celsius. The SEC has called for a revised agreement to clarify the relationship between the two parties.

Objections to Celsius Network's Reorganization Plan

On September 22, 2023, the SEC filed a limited objection to Celsius Network's reorganization plan. This plan, proposed on August 15, 2023, is yet to receive approval and has undergone multiple revisions. The SEC's concerns are rooted in inconsistencies in the documents and potential breaches of federal securities law.

Controversial Coinbase Prime Broker Agreement

A major point of contention is the Coinbase Prime Broker Agreement, unveiled on September 15, 2023. Under this agreement, Coinbase acts as a distribution agent for Celsius' international customers, offering brokerage and trading services. The SEC contends that these services exceed the typical scope of a distribution agent, echoing issues highlighted in its previous actions against Coinbase.

Legal Challenges and Responses

In June 2023, the SEC charged Coinbase with operating as an unregistered securities exchange, broker, and clearing agency. Despite Celsius' assertion that Coinbase would not offer brokerage services under the current deal, the SEC has urged the court to dismiss it. Paul Grewal, Chief Legal Officer at Coinbase, publicly questioned the SEC's objection, emphasizing Coinbase's commitment to assisting Celsius customers.

Broader Implications and Upcoming Hearings

The SEC's objections are part of broader legal actions, including a complaint against Celsius and its former CEO, Alex Mashinsky, for securities violations. Celsius Network filed for bankruptcy in July 2022, and the case continues to evolve, with the next hearing set for October 5, 2023. The outcome may have significant implications for cryptocurrency regulations and the roles of major firms like Coinbase in financial restructuring.