The United States Securities and Exchange Commission (SEC) expressed its disapproval of a bankruptcy and reorganisation plan involving cryptocurrency exchange Coinbase on Monday, September 25.

Celsius announced its intention to utilise Coinbase to deliver digital assets to overseas consumers in a lawsuit filed last Friday and seeking judicial clearance.

The case made public a Prime Broker Agreement between Coinbase and Celsius, whereby Coinbase would act as the client’s broker and master trader.

However, the SEC raised concerns, saying that further investigation of the arrangement is required.

Many of the issues brought up by the SEC in its District Court action against Coinbase (including that Coinbase “has acted as an exchange, broker, and a clearing agency, without registering […]”) are implicated by the services contemplated by the Coinbase Agreements, which go far beyond those of a distribution agent.

Since Coinbase already has a litigation pending with the SEC, the SEC’s objection filing showed that Coinbase’s anticipated operations might lead to more legal problems. The SEC’s continuing investigation against Coinbase, in which it is alleged that the company violated federal securities law by acting as an unregistered securities exchange, gave rise to these worries.

Despite what is stated in the Coinbase Agreements, the SEC noted in a later filing that the debtors do not plan for Coinbase to provide brokerage services. The SEC also noted that there is a second agreement between Coinbase and Coinbase that has not been made public.

The SEC insists that the court hear about this secret pact. The SEC has demanded fresh documentation detailing their arrangement with Coinbase be drafted, and it has not waived its ability to protest if Coinbase’s position is not included.

In response, Coinbase’s chief legal officer Paul Grewal said in X, “Coinbase is proud to engage with Celsius to distribute crypto back to its customers.” Why would the SEC have a problem with a reputable US public firm filling this role? We’re excited to work with the bankruptcy court to resolve this and make Celsius’s consumers whole.

Celsius and its previous CEO are defendants in an SEC complaint.

Celsius, a cryptocurrency exchange, declared bankruptcy in July of 2022. The Securities and Exchange Commission filed charges against Celsius and its former CEO Alex Mashinsky for securities registration and anti-fraud violations in July 2023.

Celsius was accused of manipulating the price of its native token, CEL, since at least 2020, as well as raising billions of dollars via illegal and unregistered sales of crypto asset securities.

Celsius has been working on a reorganisation plan since March, and has already gone through four iterations. Despite efforts to speed up repayments, legal hurdles continue to be a problem.

Celsius received approval from the bankruptcy court in August to have electronic ballots sent to creditors in October so they may vote on the proposed reorganisation. However, the bankruptcy case’s next hearing isn’t until October 5th.

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