In a recent court filing on Aug. 25, Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York rejected a motion to establish a special shareholders class in the Celsius Network bankruptcy case. Furthermore, the judge declined to determine whether the Celsius (CEL) token should be classified as a security. This decision has significant implications for investors and the legal proceedings surrounding the bankruptcy case.
Investor Otis Davis, in a motion filed on July 25, urged the court to create a separate legal class for investors in the Celsius Network bankruptcy case to distinguish them from employees and customers. Davis also sought sanctions against the legal team representing the Unsecured Creditors Committee (UCC), accusing them of failing to disclose required information. Additionally, the motion asked the court to declare CEL as “not a security” based on the recent SEC v. Ripple case, where Judge Analisa Torres ruled that XRP was not a security.
Instead of tackling each request separately, Judge Glenn swiftly denied all three motions in his response, just 11 days after the arguments were presented in an Aug. 14 hearing. He firmly rejected Davis’ requests and explicitly stated that his decision did not constitute a finding on whether crypto tokens or transactions involving them are securities. Judge Glenn emphasized that the right of the SEC and the Committee to challenge such transactions remains reserved.
This ruling has significant implications for the ongoing Celsius Network bankruptcy case. By denying the establishment of a special shareholders class, Judge Glenn has chosen not to provide investors with a distinct legal status, which could have had implications for their potential recovery in the bankruptcy proceedings. The decision also leaves the legal team representing the UCC free from sanctions, despite Davis’ claims of inadequate disclosure.
Moreover, by declining to determine whether CEL should be classified as a security, the judge has left the status of the token uncertain. This lack of clarity could have far-reaching consequences for both the Celsius Network and its investors. Without a definitive ruling, the legal and regulatory framework surrounding CEL remains ambiguous, making it difficult for market participants to fully understand their rights and obligations.
It is crucial to note the tumultuous history of the Celsius Network, which led to its bankruptcy in July 2022. Just one year after the bankruptcy, the company’s former CEO, Alex Mashinsky, was arrested and charged with fraud. The subsequent settlements aimed at providing relief to customers and investor groups demonstrate the complex and challenging nature of the legal proceedings.
Judge Glenn’s swift dismissal of the motions requesting a special shareholders class and a ruling on CEL’s security status has significant implications for the Celsius Network bankruptcy case. The denial of a separate legal class for investors and the ambiguity surrounding the token’s classification raise concerns about the protection and rights of investors. As the case progresses, it remains to be seen how these decisions will impact the recovery efforts and the future of the Celsius Network.