SEC objects to Coinbase’s Celsius restructuring plan.

SEC objects to Coinbase's Celsius restructuring plan.

The SEC Objects to Celsius Network’s Reorganization Plan, Citing Concerns Over Coinbase Lawsuit

The United States Securities and Exchange Commission (SEC) has raised objections to Celsius Network’s proposed reorganization plan, citing its ongoing lawsuit with cryptocurrency exchange Coinbase as one of the reasons. The SEC filed a limited objection and reservation of rights in the U.S. Bankruptcy Court for the Southern District of New York on September 22. This objection is specific to Celsius’ most recent restructuring plan, which is still awaiting approval.

Celsius Network, a popular cryptocurrency lending platform, included a distribution services agreement with Coinbase in their plan. However, the SEC expressed concerns that this agreement would require Coinbase to provide services that go beyond those of a typical distribution agent. This raised concerns as these services could be related to the issues raised by the SEC in its civil suit against Coinbase, filed in June.

In its objection, the SEC highlighted the discrepancy between Celsius’ intention for Coinbase and the language used in the Coinbase Agreements. The SEC emphasized that the bankruptcy court should not approve a deal where the material terms are missing or inconsistent.

The restructuring plan of Celsius Network has been undergoing revisions since March. Meanwhile, Coinbase is facing a lawsuit from the SEC, accusing the exchange of offering unregistered securities. In response to the objection, Coinbase CEO Brian Armstrong and chief legal officer Paul Grewal expressed their support for Celsius Network by stating that the exchange was “proud to engage with Celsius” in their efforts to return user funds.

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This objection from the SEC follows Celsius’ announcement of a deal with Core Scientific. As part of the deal, Core Scientific agreed to sell a mining data center to Celsius for $14 million in cash while also settling existing legal issues between the two companies. It should be noted that Celsius had defaulted on its payments to Core Scientific since filing for bankruptcy in July 2022.

To move forward with the restructuring plan, Celsius received approval from the bankruptcy court to send out digital ballots for voting in October. The next hearing in the bankruptcy case is scheduled for October 5.

Background

The emerging field of blockchain technology has revolutionized various industries, including finance, supply chain management, healthcare, and more. At its core, a blockchain is a decentralized, immutable, and transparent ledger that records transactions across a network of computers. The blockchain industry encompasses a wide range of applications, from cryptocurrencies like Bitcoin and Ethereum to smart contracts, decentralized finance (DeFi), non-fungible tokens (NFTs), and more.

SEC’s Role in Regulating the Blockchain Industry

As the primary regulatory body overseeing securities markets in the United States, the SEC plays a crucial role in monitoring and regulating activities within the blockchain industry. The SEC ensures compliance with securities laws, including the registration of securities offerings, the protection of investors, and the prevention of fraudulent activities. Given the decentralized nature of blockchain technology, the SEC faces unique challenges in enforcing regulations and protecting investors.

The Celsius Network’s Reorganization Plan

Celsius Network, founded in 2017, is a prominent lending platform in the blockchain industry. The platform allows users to earn interest on their cryptocurrencies and offers loans against users’ crypto holdings. However, like many businesses in the blockchain industry, Celsius faced challenges, leading to its decision to file for bankruptcy in July 2022.

To address its financial difficulties and seek a way out of bankruptcy, Celsius presented a reorganization plan to the U.S. Bankruptcy Court for the Southern District of New York. The plan aims to restructure Celsius’ debts, secure funding, and enable the platform to continue its operations.

The SEC’s Objection to the Reorganization Plan

In response to Celsius Network’s proposed reorganization plan, the SEC filed an objection with the bankruptcy court. The objection primarily stems from the SEC’s ongoing lawsuit against Coinbase, one of the largest cryptocurrency exchanges in the world.

The objection centers around a distribution services agreement between Celsius Network and Coinbase included in the proposed plan. The SEC expressed concerns that this agreement could potentially require Coinbase to offer services beyond the scope of a traditional distribution agent. These additional services might relate to the issues raised in the commission’s civil suit against Coinbase, which alleges the sale of unregistered securities.

The SEC pointed out a discrepancy between Celsius’ stated intention for Coinbase’s role and the language used in the Coinbase Agreements. While Celsius clarified that it does not intend for Coinbase to provide brokerage services, the SEC highlighted the importance of having consistent and clear terms in the proposed agreement.

The Relationship Between Celsius Network and Coinbase

Celsius Network’s decision to include Coinbase in its reorganization plan likely stems from their partnership and shared vision. Coinbase, as a reputable and regulated cryptocurrency exchange, has gained trust from users and investors. Celsius Network aimed to leverage this trust and engage Coinbase to facilitate the distribution of crypto assets back to its customers.

Both Celsius Network and Coinbase share a common goal of returning user funds and maintaining transparency in the cryptocurrency industry. However, the SEC’s objection has temporarily stalled this aspect of the reorganization plan.

The Impact on Celsius Network’s Restructuring

Celsius Network has undergone revisions to its proposed reorganization plan since March of this year. While these revisions have aimed to address the platform’s financial challenges and provide a clear path out of bankruptcy, the objection from the SEC has added complexity to the process.

The objection signifies an additional hurdle for Celsius Network to overcome in its restructuring efforts. The bankruptcy court will need to carefully consider the SEC’s concerns and the potential impact of the Coinbase agreement on the overall reorganization plan. This will require assessing the specific services Coinbase would provide and ensuring they align with Celsius’ intentions and compliance with securities laws.

Conclusion

The objections raised by the SEC to Celsius Network’s reorganization plan highlight the complex regulatory landscape in the blockchain industry. As the industry continues to evolve, stakeholders, including regulators, companies, and investors, must navigate these complexities to ensure compliance and foster legitimacy.

Celsius Network’s partnership with Coinbase underscores the importance of establishing strong relationships within the industry to enhance trust and facilitate secure transactions. While the objection has temporarily impacted the proposed distribution services agreement, it also serves as an opportunity for regulatory and legal bodies to refine guidelines and clarify expectations for all participants in the blockchain industry.

As the bankruptcy court evaluates Celsius Network’s reorganization plan, the outcome will have implications beyond just the parties involved. It will shape the future of regulatory frameworks governing the blockchain industry, providing valuable insights into addressing the unique challenges posed by this revolutionary technology.