Coinbase defends customer asset rights in Prime Trust bankruptcy case

Coinbase has stepped into the Prime Trust bankruptcy case, filing an amicus brief to push back against a motion that could threaten customer asset protections.

In a Feb. 5 court filing, the exchange has urged the court to uphold Uniform Commercial Code (UCC) Article 8, a legal framework that ensures custodial assets remain customers’ property.

According to the exchange:

“Article 8 contains unambiguous statutory text that parties may agree to treat a host of assets, including cash or digital assets, as financial assets credited to a securities account, and that assets subject to such agreement are not property of the custodian’s estate.”

Paul Grewal, Coinbase’s Chief Legal Officer (CLO), further emphasized in an X post that UCC Article 8 establishes a fundamental principle—customer assets stored by custodians do not belong to the custodian. Instead, they remain the property of the rightful owners.

According to Grewal, Coinbase and Prime Trust have user agreements that clearly state that customers retain full ownership of their assets. He argued that any attempt to classify those holdings as part of a custodian’s estate during bankruptcy would contradict those agreements and undermine legal protections.

Grewal stressed that UCC Article 8 is not just about crypto—it is a foundational legal safeguard designed to keep customer assets separate from a custodian’s holdings. He warned that allowing assets to be absorbed into Prime Trust’s bankruptcy proceedings could erode market trust and disrupt financial stability.

The issue arose after Prime Trust filed for Chapter 11 bankruptcy in August 2023 following severe financial troubles. As part of its bankruptcy proceedings, the estate’s managers filed a Determination Motion on Jan. 15, proposing to merge customer funds with the platform’s assets.

Coinbase believes that granting this motion could set a dangerous precedent that weakens customers’ legal protections in crypto and traditional finance.

Considering this, the firm urged the court to reject the Determination Motion to ensure that established legal protections remain intact.

Grewal concluded that courts have consistently reinforced these principles and should do the same in this case. He wrote:

“Protecting customer assets is paramount to trust and security.”

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