Bankruptcy Judge Delays Ruling on CEL Token’s Security Status, Citing Ripple Case

• A bankruptcy judge declined to determine if CEL, Celsius Network’s native token, should be classified as a security, citing the ongoing Ripple vs. SEC legal battle.
• Otis Davis, a significant CEL token holder, sought to establish a separate committee for CEL token holders based on legal precedents set in the Ripple case.

A recent bankruptcy court decision has refrained from classifying CEL, the native token of Celsius Network, as a security. The judge invoked the ongoing legal dispute between Ripple Labs and the U.S. Securities and Exchange Commission (SEC) as a reason for the delay.

The legal proceedings took an unexpected turn when Otis Davis, a significant holder of CEL tokens, requested the judge to consider the legal precedent set by the Ripple/XRP case. Davis urged the establishment of a separate committee for CEL token holders. However, Chief U.S. Bankruptcy Judge Martin Glenn declined this motion, along with others, on Friday.

Judge Glenn emphasized that the court’s decision did not provide a definitive conclusion regarding whether crypto tokens or transactions involving them should be categorized as securities under federal securities laws. The order explicitly maintained the right for both the SEC and the committee to challenge transactions involving crypto tokens.

The ongoing legal feud between the SEC and Ripple began in 2020 when the SEC accused Ripple of unlawfully raising $1.3 billion through the sale of XRP, asserting that it constituted an unregistered security.

A recent ruling in favor of Ripple by a U.S. court, issued by Judge Analisa Torres of the U.S. District Court for the Southern District of New York, stated that the sale of XRP on digital asset exchanges did not equate to offers and sales of investment contracts. This ruling, although favorable to Ripple, acknowledged that certain direct sales of XRP to institutional investors qualified as securities.

This precedent-setting ruling has been referenced in other legal cases, including those involving Terraform Labs.

While the question of CEL’s security status remains unanswered, Celsius Network has faced scrutiny in a separate matter. Shoba Pillay, a court-appointed examiner, revealed discrepancies in Celsius’ handling of CEL tokens and its marketing strategy. The investigation indicated that Celsius’ actions inflated the price of CEL tokens, benefiting company executives, including CEO Alex Mashinsky and co-founder Daniel Leon.

The convergence of these legal matters underscores the intricate relationship between legal definitions and cryptocurrency valuations, and how they impact industry participants.