A landmark judgment about whether the Ripple-linked XRP token is a security is unlikely to impact plans for the wind-up of bankrupt crypto lender Celsius, the bankrupt crypto lender’s counsel told a New York court on Tuesday.
Last week a court ruled XRP constituted a security when offered to institutional buyers like hedge funds – something that has attracted the attention of Judge Martin Glenn, in parallel bankruptcy proceedings for Celsius.
“We don't think it [the Ripple judgment] has any effect outside of potentially the CEL token issue,” Chris Koeing of law firm Kirkland and Ellis, representing Celsius, told the court, adding that the new company set to take over “is not engaged in any securities offerings and has not engaged in any of Celsius’ historic business practices.”
The Fahrenheit consortium, which won a recent bid for Celsius’ assets, will concentrate on less legally contentious issues like bitcoin mining and Ethereum staking, Koenig said.
The XRP ruling could impact creditor repayments for holdings of Celsius’ token CEL, given U.S. bankruptcy rules which apply a mandatory downgrade to customer claims relating to securities. The estate has previously judged the token’s worth at $0.20, but it could also fall to zero, Koenig said, while some creditors have argued it should be valued at $0.81, its apparent price at the time of bankruptcy in July 2022.
‘Terminated in short-order’
Last week Celsius’ founder and former CEO Alex Mashinsky, alongside Chief Revenue Officer Roni Cohen-Pavon, were charged on multiple fraud counts by the Department of Justice, as well as by securities, commodities and trade regulators. Mashinsky has pleaded not guilty and his lawyers described the charges as “baseless.”
On learning of the indictment of Cohen-Pavon, an Israeli citizen, last week, a special committee of Celsius’ board immediately met to authorize him to be fired, Koenig said.
“He is expected to be terminated in short order” once a hearing required by Israeli law occurs, Koenig said. “Even prior to this process, Mr. Cohen-Pavon did not have significant authority with respect to the debtors’ day to day operations.”
In parallel to Mashinsky’s arrest, regulators announced a number of deals with Celsius in a bid to avoid any impact on creditor distributions. The stipulation the company entered into with the Securities and Exchange Commission would back up the regulator’s claim that CEL and Celsius’ Earn Interest Account are securities, Koenig said.
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