- The SEC objects to Coinbase assisting in Celsius’ bankruptcy proceedings.
- The regulatory agency is concerned about the implications of Coinbase’s own SEC lawsuit.
- The Celsius bankruptcy saga seems close to its end.
Crypto lending platform Celsius was one of many firms in the industry that enjoyed a meteoric rise during the pandemic bull market of 2020-2021. The lender’s fortunes quickly changed in July 2022 after allegations of financial mismanagement and fraud came to light, triggering a bank run on the platform as rumors of insolvency swirled. Shortly after, Celsius froze user accounts and filed for bankruptcy with billions owed to creditors.
Fast forward to September 2023, Celsius is working to exit bankruptcy and resume operations under new leadership. The latest plan on the table involves redistributing assets to users locked out of their accounts, with assistance from Coinbase. However, the Securities Exchange Commission (SEC) has objected to Coinbase’s involvement.
The SEC Objects
According to a court filing at the New York Bankruptcy Court dated September 22, the SEC voiced concerns that Celsius’ asset redistribution agreement with Coinbase exceeds distribution service and implies additional activity, such as brokerage services.
The SEC argues this is inappropriate, given that Coinbase is currently facing its own charges for allegedly operating an unregistered exchange. The agency asserts that allowing disputed services during ongoing litigation risks improperly validating those activities before final rulings have been made.
Responding to the SEC’s objections, the chief legal officer at Coinbase, Paul Grewal, defended the company’s involvement. In a tweet, Grewal stated that Coinbase is proud to be involved and questioned why the SEC would protest a role that delivers relief to victims of the alleged financial mismanagement at Celsius.
The issue concerns the pending Bankruptcy Court ruling over the CEL token’s security status. The SEC alleges Celsius illegally offered CEL as an unregistered security, and a conflicting ruling could undermine the SEC’s position and settlement in its litigation against Celsius.
However, suppose the court sides with Celsius, agreeing that CEL is not a security. In that case, it potentially opens the door for broader involvement of Coinbase in distributing and facilitating the exchange of CEL tokens. This could improperly validate Coinbase’s disputed services before its lawsuit with the SEC concludes.
While Coinbase has stepped up to aid Celsius customers in regaining access to their frozen assets, Celsius itself is looking ahead with plans to emerge from bankruptcy as a restructured company.
Celsius Looks to the Future
The latest twist in the long-running Celsius saga sees plans for reorganizing the company under the leadership of Fahrenheit Holdings, a consortium of companies that includes VC firm Arrington Capital and mining firm US Bitcoin Corp.
The overwhelming majority of creditors voted in favor of the plan this month, which proposes creditors receive between 67% and 85% of the assets and equity held in the newly formed company, which holds the temporary placeholder name “NewCo.”
Despite the ordeal nearing a close, the US Trustee objected to the plan. The New York Bankruptcy Court will decide a final confirmation on the go-ahead on October 2.
On the Flipside
- The SEC’s objection to Coinbase assisting in Celsius’ redistribution efforts clashes with its mandate to enforce securities laws to ensure truth and fairness.
- The pending ruling on CEL’s securities status puts the SEC in a lose-lose situation, regardless of the outcome.
Why This Matters
The SEC’s objections to Coinbase’s involvement in Celsius’ bankruptcy proceedings demonstrate the agency’s continued intent to stamp down on the crypto industry. The issue further illustrates the complex tensions around crypto in the US, as firms struggle to comply with what the SEC deems legal despite calls for clarity from Coinbase CEO Brian Armstrong.
Find out what Ripple’s Stuart Alderoty said about Gary Gensler here:
Ripple’s CLO Publicly Accuses SEC Chair of Fraud and Manipulation
Learn more about Ben Armstrong’s run-in with the law here:
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