SEC Raises Concerns Over Coinbase’s Role in Celsius’ Bankruptcy Plan

The Securities and Exchange Commission (SEC) has reportedly expressed reservations regarding Coinbase Global’s proposed involvement in Celsius Network’s plan to emerge from bankruptcy.

The SEC, which previously charged Coinbase with operating as an unregistered securities exchange, broker and clearing house, has raised concerns about the agreements between Celsius and Coinbase, stating that they go beyond the scope of a distribution agent’s services, Bloomberg reported Monday (Sept. 25).

This development adds another layer of complexity to Celsius’ efforts to restructure and distribute approximately $2 billion worth of bitcoin and ether to its customers, according to the report.

Celsius, a crypto lender, filed for bankruptcy protection in July 2022 and is now working towards a fresh start as a user-owned company, the report said. The company aims to distribute its assets under the management of investment firm Arrington Capital, which is part of a consortium that won Celsius’ assets at a bankruptcy auction earlier this year.

However, the SEC, along with the Justice Department’s bankruptcy watchdog and some Celsius customers, has raised objections to certain aspects of Celsius’s Chapter 11 plan, per the report.

The SEC’s concerns primarily revolve around Coinbase’s role in distributing Celsius’s assets to international customers, according to the report. The SEC argues that the agreements between Celsius and Coinbase extend beyond the services of a distribution agent and involve brokerage and master trading services. These services, according to the SEC, raise similar concerns to those outlined in its lawsuit against Coinbase earlier this year.

Paul Grewal, Coinbase’s chief legal officer, said in a Monday post on X: “Coinbase is proud to engage with Celsius to distribute crypto back to its customers. I wonder, why would the SEC object to a trusted U.S. 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.”

In addition to the SEC’s objections, Celsius and its former CEO, Alex Mashinsky, are facing fraud allegations from the SEC, the Bloomberg report said. Mashinsky has also been charged with criminal offenses, to which he has pleaded not guilty.

It was reported Sept. 14 that a former executive at Celsius Network, Roni Cohen-Pavon, pleaded guilty to criminal charges in the U.S. and has agreed to cooperate with prosecutors’ investigations.