In a significant legal development, a bankruptcy judge has declined to determine the classification of CEL, the native token of Celsius, as a security. This decision comes in the midst of an ongoing legal tussle between Ripple Labs and the US Securities and Exchange Commission (SEC). Otis Davis, a significant holder of CEL tokens, had previously petitioned the judge to draw upon the legal precedent set in the Ripple/XRP case to establish a separate committee for CEL token holders.
However, Chief US Bankruptcy Judge Martin Glenn, in a ruling delivered on Friday, denied Davis’ motion, along with several others. He clarified that the court’s decision should not be misconstrued as a conclusive judgment on whether cryptocurrency tokens or transactions involving them should be classified as securities under federal securities laws. The order explicitly reserved the right for both the SEC and the committee to challenge any transactions involving cryptocurrency tokens. The judge emphasized that “Nothing in the Motions, this Order, or announced at the Hearing constitutes a finding under the federal securities laws as to whether crypto tokens or transactions involving crypto tokens are securities.”
The legal dispute between the SEC and Ripple originated in 2020 when the SEC accused Ripple of unlawfully raising $1.3 billion through the sale of XRP, contending that XRP was an unregistered security. In a recent development, a US court ruled in favor of Ripple in the ongoing lawsuit brought by the SEC. The ruling asserted that the mere sale of XRP on digital asset exchanges does not inherently constitute an investment contract. However, the court also determined that direct sales of XRP to institutional investors could be classified as securities, marking a partial victory for the SEC. This ruling has subsequently been referenced in other legal cases, including a separate matter involving Terraform Labs.
In another notable aspect, Shoba Pillay, a court-appointed examiner who investigated Celsius’ handling of CEL tokens and its marketing practices, earlier alleged that Celsius’ business model substantially deviated from its representations to customers. She contended that Celsius had effectively been insolvent since its inception and employed CEL as the linchpin of a scheme that primarily benefited company executives at the expense of customers. The investigation revealed that Celsius spent at least $558 million to purchase CEL tokens on the open market, causing the token’s price to surge over 14,000% since mid-2020. This inflated price notably favored top executives, including CEO Alex Mashinsky and co-founder Daniel Leon, who sold substantial amounts of CEL tokens between 2018 and 2022, totaling at least $68.7 million and $9.74 million, respectively. As a response to Mr. Mashinsky’s sales, Celsius often increased the size of its buy orders to absorb the CEL tokens sold by him and his affiliated entities.
