A bankruptcy judge declined to rule on whether Celsius’s native token, CEL, qualifies as a security, pointing to the ongoing lawsuit between Ripple Labs and the US Securities and Exchange Commission (SEC).
Otis Davis, a significant holder of the CEL token, had earlier appealed to the judge to consider the established legal stance from the Ripple/XRP situation to form a distinct committee for CEL token holders.
Yet, Chief US Bankruptcy Judge Martin Glenn dismissed Davis’ request, among others, this past Friday.
Judge Glenn emphasized in his statement that the court’s verdict shouldn’t be seen as a conclusive stance on the status of crypto tokens or their transactions under federal securities regulations.
The ruling clearly stated that both the SEC and the committee have the authority to question any deals related to crypto tokens.
“Neither the motions presented, this order, nor any declarations at the hearing should be interpreted as a judgment under federal securities regulations about the status of crypto tokens or the nature of transactions involving them,” declared the judge.
The legal tussle between the SEC and Ripple kicked off in 2020. The commission charged Ripple with illicitly amassing $1.3 billion from XRP sales, labeling it an unregistered security.
However, just last month, a US court sided with Ripple in the ongoing legal battle initiated by the SEC, determining that merely selling XRP on trading platforms does not inherently mean an investment agreement.
Judge Analisa Torres, presiding over the US District Court for the Southern District of New York, clarified in her verdict that the “distribution and trading of XRP on digital asset platforms didn’t equate to propositions or trades of investment contracts.”
Yet, she concurrently ruled that specific direct sales of XRP to institutional investors were indeed securities, thus handing the SEC a partial triumph.
This decision has subsequently been cited in various legal proceedings, one of which pertains to a distinct case involving Terraform Labs.
Examiner Claims Celsius Inflated CEL Token Price to Benefit Executives
Earlier this year, court-appointed examiner Shoba Pillay, who delved into Celsius’ management of CEL tokens and promotional tactics, highlighted that the company’s operational blueprint was markedly different from what was communicated to its customers.
She even went as far as stating that Celsius, viewed independently, has been “financially unstable from the outset.” She alleged that the crypto lending platform leveraged CEL as a primary tool in a strategy intended to unduly benefit top executives at the expense of its clientele.
Pillay’s investigation revealed that Celsius allocated over $558 million to acquire CEL tokens in public marketplaces. This move reportedly catalyzed a meteoric rise in the token’s value, experiencing an increase of more than 14,000% since early to mid-2020.
The surging price particularly benefitted leading company figures, including CEO Alex Mashinsky and co-founder Daniel Leon. Records indicate that between 2018 and 2022, Mashinsky cashed out CEL tokens valued at a minimum of $68.7 million, while Leon made sales amounting to around $9.74 million.
“Celsius frequently took measures to shield CEL from price declines, often attributing such drops to substantial sales of Mashinsky’s personal CEL assets,” the report stated. “Due to these sales by Mashinsky, Celsius regularly upped its standing purchase orders, ensuring they acquired all the CEL being offloaded by Mashinsky and his affiliated enterprises.”
