The U.S. Securities and Exchange Commission (SEC) has raised objections to Celsius’ proposed reorganization plan, which involves cryptocurrency exchange Coinbase acting as a distribution agent to return funds to former users affected by the company’s bankruptcy. The SEC argues that Coinbase’s role goes beyond the typical duties of a distribution agent. Furthermore, the regulator points out inconsistencies in Celsius’ statements regarding Coinbase’s involvement, highlighting the contradiction between the company’s denial of Coinbase providing brokerage services and their agreement indicating otherwise. The SEC also suspects that there may be an additional agreement between the two companies that has not been disclosed, urging the court to compel disclosure. Additionally, the SEC expresses concerns about certain trading services described in the agreement, which align with issues raised in its lawsuit against Coinbase filed earlier this year.
Response from Coinbase
Coinbase’s Chief Legal Officer, Paul Grewal, responded to the SEC’s objections, expressing the firm’s pride in assisting Celsius with the distribution of crypto back to its customers. Grewal questions why the SEC is opposing the distribution plan and promises to address the matter within the framework of Celsius’ bankruptcy proceedings. It is worth noting that Celsius ceased withdrawals in June 2022 and filed for bankruptcy a month later in July, consequent to claims of owing $4.7 billion to creditors, excluding institutional partners.
The SEC’s objections to Celsius’ bankruptcy plan are not the only issues the cryptocurrency firm is facing. The regulatory body has also initiated a securities fraud case against Celsius and its former CEO, Alex Mashinksy, related to the CEL token. In the lawsuit, the SEC alleges that Celsius and Mashinksy conducted unregistered and fraudulent security offerings involving the CEL token. Separately from the bankruptcy case, this ongoing lawsuit adds another layer of legal complexity to Celsius’ operations.
The SEC has taken advantage of the bankruptcy case to request a ruling on whether the CEL token should be classified as a security. However, the regulator stresses that it wants the ruling to solely apply to the dispute concerning Celsius’ distribution plan. Any broader ruling, the SEC says, could potentially hinder its ongoing securities case against Celsius.
Potential Implications
The SEC’s objections and requests for specific rulings have significant implications for Celsius and its future. Should the SEC’s concerns regarding Coinbase’s involvement be upheld, Celsius might need to revisit its choice of distribution agent, potentially further delaying the return of funds to users. Additionally, if the CEL token is deemed a security, it may have profound consequences for Celsius’ operations and future legal battles.
Celsius finds itself embroiled in a complex legal landscape, with the SEC objecting to their chosen distribution agent and raising questions about the classification of their token. The outcome of these disputes and the subsequent rulings could reshape the future of Celsius and set important precedents in the crypto industry as a whole. Celsius and Coinbase will need to navigate these challenges carefully, while the SEC aims to safeguard investor interests and maintain regulatory oversight.