In a recent bankruptcy case, Chief US Bankruptcy Judge Martin Glenn declined to determine the security classification of CEL, the native token of Celsius, drawing parallels to the ongoing legal battle involving Ripple Labs and the US Securities and Exchange Commission (SEC). The case raises questions about the status of crypto tokens under federal securities laws.
Otis Davis, a significant holder of CEL tokens, had petitioned the court to consider the Ripple/XRP case as a legal precedent and establish a distinct committee for CEL token holders. The request was part of Davis’ broader motion. However, Judge Glenn, in a ruling on Friday, dismissed Davis’ motion along with others.
Clarification on Legal Status
Judge Glenn’s order explicitly emphasized that the court’s decision should not be construed as a definitive conclusion regarding the classification of crypto tokens or transactions involving them as securities under federal securities laws. The ruling left open the option for both the SEC and concerned committees to contest transactions involving crypto tokens.
The ongoing legal dispute between the SEC and Ripple commenced in 2020 when the SEC accused Ripple of unlawfully raising $1.3 billion through the sale of XRP, alleging it to be an unregistered security. Notably, a recent ruling in favor of Ripple, delivered by Judge Analisa Torres of the US District Court for the Southern District of New York, stated that selling XRP on digital asset exchanges did not inherently qualify as investment contract offers and sales.
This ruling has had ramifications beyond the Ripple case, influencing similar matters such as the dispute involving Terraform Labs.
Celsius’ Handling of CEL Tokens
Shoba Pillay, a court-appointed examiner, investigated Celsius’ management of CEL tokens and marketing strategies. Pillay’s findings asserted a significant discrepancy between Celsius’ portrayed business model and its actual practices. The examiner alleged that Celsius has been insolvent since its inception and utilized CEL tokens to benefit its executives, including CEO Alex Mashinsky and co-founder Daniel Leon.
Pillay’s investigation revealed that Celsius spent over $558 million to acquire CEL tokens on open markets, causing the token’s price to surge by more than 14,000% since mid-2020. This elevated price greatly benefited top executives, who sold substantial amounts of CEL tokens, raising questions about the company’s operations.
The rejection of CEL’s security classification in the bankruptcy proceedings, alongside the invocation of the Ripple case, underscores the intricate legal landscape surrounding cryptocurrency tokens. The implications of these decisions ripple across various cases, bringing attention to the evolving interpretation of securities laws in the crypto domain.
