Celsius Network creditors have given their nod of approval to the proposed restructuring plan of the beleaguered digital asset lender. However, the Securities and Exchange Commission (SEC) in the United States has raised concerns about the participation of Coinbase (NASDAQ: COIN) in the process.
On September 25, it was reported that creditors of Celsius Network had voted in favor of a restructuring plan aimed at recovering some of the assets lost during the company’s collapse in July 2022. The plan received overwhelming support from over 98% of creditor groups. These creditors stand to regain between 67% to 85% of the assets they had entrusted to Celsius, which amounts to approximately $2 billion in various assets, primarily in Bitcoin (BTC) and Ethereum (ETH). However, it’s important to note that the plan’s final approval rests with the U.S. Bankruptcy Court for the Southern District of New York, which is set to hold a hearing on the matter on October 2.
Despite the favorable vote from creditors, the restructuring plan encountered opposition from the U.S. Trustee, a branch of the Department of Justice (DoJ), and the SEC. The Trustee had previously expressed concerns about the plan, particularly its “release and exculpation provisions,” which it deemed overly broad and inclusive of future parties and activities.
The SEC’s objections were more pointed, citing potential issues with federal securities laws. Specifically, the SEC raised concerns about certain aspects of the plan related to Coinbase’s role in returning assets to Celsius’s international customers. The SEC argued that the proposed agreements involving Coinbase extended beyond the scope of a distribution agent’s services, potentially involving brokerage services and master trading services. These activities, according to the SEC, are in line with the concerns raised in the SEC’s District Court action against Coinbase.
The SEC’s objection also questioned the language in the Coinbase Agreements, highlighting discrepancies and missing information regarding Coinbase’s role in the process. The SEC recommended that the Court should not approve any agreements without clarifying Coinbase’s responsibilities.
Coinbase’s Chief Legal Officer, Paul Grewal, expressed confusion over the SEC’s objections, stating his uncertainty about why the SEC would object to a trusted U.S. public company’s involvement in this role. However, Grewal acknowledged that Coinbase’s role was limited and would not result in all creditors being made whole.
Venture capitalist Chris Dixon responded to Grewal’s statement by emphasizing that Coinbase’s role was limited to distributing approximately 30% of liquid crypto assets if approved. Grewal later clarified that nobody was being made whole through Coinbase’s involvement in the process.
Critics of Grewal’s assertion about Coinbase being “trusted” pointed to the exchange’s history of regulatory issues, including a $100 million penalty it paid in January for compliance deficiencies related to anti-money laundering and know-your-customer protocols in New York State.
In a related development, the new group set to take operational control of Celsius’s remaining units, known as “Fahrenheit,” will not include Arrington Capital founder Michael Arrington, who had initially been nominated for a board seat. Arrington announced via Twitter that he still supports the deal and Arrington Capital’s investment and advisory role through Fahrenheit, but he disagreed with certain decisions regarding the board constitution and board observers. Ravi Kaza, an investor and advisor with Arrington Capital, will replace Arrington on the board.
This evolving situation within the crypto industry continues to raise questions about the roles and responsibilities of major players and their interactions with regulators.
