SEC objects to Coinbase’s proposed role in Celsius bankruptcy plan

The U.S. Securities and Exchange Commission (SEC) on Sept. 23 filed an objection to part of a reorganization plan advanced by bankrupt crypto firm Celsius.

That filing indicates that Celsius aims to have the crypto exchange Coinbase act as a distribution agent and return funds to former users affected by its collapse. To that end, Celsius is seeking approval of a related agreement in bankruptcy court.

However, the SEC contends that the role Coinbase is expected to play, as per the filing, surpasses the typical duties of a distribution agent. The regulator also highlighted inconsistencies: Celsius has stated that it does not intend for Coinbase to provide brokerage services, but its agreement with Coinbase suggests that such services will in fact be provided.

The securities regulator said it believes that the two companies have an additional agreement that they intend to file under seal. The regulator argued that, if there is a new agreement, that agreement should be provided to it and to the court.

The SEC added that some trading services described within the agreement are related to various concerns that it raised in its June 6 lawsuit against Coinbase.

Paul Grewal, Coinbase’s chief legal officer, commented on the matter on Sept. 25.  Grewal wrote that his firm is “proud to engage with Celsius to distribute crypto back to its customers.” He also questioned why the SEC is opposed to the distribution plan and said that his firm will address the matter within Celsius’ bankruptcy proceedings.

Celsius originally halted withdrawals in June 2022 and filed for bankruptcy about one month later in July. A Forbes report at that time suggested that the company owed $4.7 billion to creditors, including retail users but excluding institutional partners.

SEC concerns also extend to CEL token

The SEC noted that it has put forward allegations around Celsius’ CEL token in a securities fraud case. That case began in July and is separate from the bankruptcy case.

In the fraud case, the SEC alleges that Celsius and its former CEO Alex Mashinksy offered and sold the CEL token in unregistered and fraudulent security offerings.

Now, as part of its latest complaint in the bankruptcy case, the SEC has asked the court to rule on whether CEL is a security. It also asked for the effects of this ruling to be limited to the dispute over Celsius’ distribution plan. The regulator said that any broader ruling could “impede and jeopardize” its separate securities case against Celsius.

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