My first manager at a big tech co was the CTO of a 500 person company. He was down-leveled to being a first-level manager.
There is so much interesting to unpack here.
He was down-leveled to a first level manager at the company you are at? He accepted this? Why? Do you think he / the new company chose wisely? What ended up happening?
It is quite common for CTOs of smaller companies to be hired as team leaders into bigger companies; nothing wrong with that.