A bankruptcy judge has declined to determine whether the CEL token of Celsius should be classified as a security, citing the ongoing legal battle between Ripple Labs and the US Securities and Exchange Commission (SEC).
Otis Davis, a major CEL token order, had previously requested the judge to “recognize the legal precedent that has been set in the Ripple/XRP case” in order to establish a separate committee for CEL token holders.
However, Chief US Bankruptcy Judge Martin Glenn denied Davis’ motion and others on Friday. He clarified that the court’s decision did not constitute a definitive conclusion on whether crypto tokens or transactions involving them should be considered securities under federal securities laws.
The order specifically reserved the right for both the SEC and the committee to challenge any transactions involving crypto tokens.
The legal dispute between the SEC and Ripple began in 2020 when the agency accused Ripple of unlawfully raising $1.3 billion through the sale of XRP, claiming it to be an unregistered security.
Last month, a US court ruled in favor of Ripple in the ongoing lawsuit brought by the SEC, stating that selling XRP on exchanges does not constitute an investment contract.
However, the court also determined that other direct sales of XRP to institutional investors qualified as securities, granting a partial victory to the SEC. This ruling has been referenced in other court cases, including one involving Terraform Labs.
In another development, Shoba Pillay, a court-appointed examiner who investigated Celsius’ handling of CEL tokens and marketing strategy, revealed earlier this year that the company’s business model differed significantly from what it told customers.
Pillay claimed that Celsius “on a stand-alone basis has been insolvent since inception” and alleged that the crypto lender used CEL as the centerpiece of a scheme to enrich executives at customers’ expense.
The investigation found that Celsius spent at least $558 million to purchase CEL tokens on open markets, causing the token price to surge more than 14,000% since mid-2020.
The inflated price benefited top company executives, including CEO Alex Mashinsky and co-founder Daniel Leon, who sold CEL worth at least $68.7 million and $9.74 million between 2018 and 2022, respectively.
“Celsius often sought to protect CEL from price drops that it attributed to Mr. Mashinsky’s sales of large amounts of his personal CEL holdings. As a result of Mr. Mashinsky’s sales, Celsius often increased the size of its resting orders to buy all of the CEL that Mr. Mashinsky and his other companies were selling,” stated the report.