Key takeaways:
- Due to allegations that the US SEC intends “to regulate ETH as a security,” the software development company Consensys launched a lawsuit against them.
- Consensys claimed that the company’s MetaMask wallet software, which enables users to self-custody ETH and other cryptocurrencies, was the target of an SEC “tune-in.”
Due to allegations that the US Securities and Exchange Commission (SEC) and its five commissioners intend “to regulate ETH as a security,” the software development company Consensys launched a lawsuit against them.
Consensys claimed in a filing on April 25 in the U.S. District Court for the Northern District of Texas that the SEC had planned an effort to dictate the direction of cryptocurrencies by bringing enforcement actions against Ether that were intended to regulate it as a security.
The company referenced the SEC’s record of announcing as early as 2018 that ETH was not a security, citing statements made by Chair Gary Gensler as well. It also warned of the potential consequences of the agency shifting its view after companies had established their operations based on regulatory precedent. The filing stated:
“The SEC’s unlawful seizure of authority over ETH would spell disaster for the Ethereum network, and for Consensys,”
In the court brief, it was said that all ETH holders would be concerned about breaking securities laws if they transferred their ETH on the network. According to the document, anyone who purchases ETH can no longer use Ethereum’s library of decentralized services and apps. This has the potential to severely damage one of the biggest innovations on the internet by prohibiting the use of the Ethereum blockchain in the US.
Consensys claimed that the company’s MetaMask wallet software, which enables users to self-custody ETH and other cryptocurrencies, was the target of an SEC “tune-in.”
The company stated in the statement that on April 10, it received a Wells notice from the SEC alerting it to possible enforcement actions pertaining to its MetaMask Staking and Swaps products. In a phone conference, the SEC stated that Consensys was conducting business as an unlicensed broker-dealer, the report continued.
In addition to naming all five SEC commissioners in their formal capacities, the complaint also took aim at Gensler’s contradictory remarks regarding Ether.
In an April 2023 hearing, the SEC chair dodged questions about whether ETH fell under the commission’s regulatory purview, despite having declared in 2018 that Ether was not a security while serving as a university professor.
Consensys reports that in 2023, the company was sent with three subpoenas requesting data pertaining to “acquisitions, holdings, and sales of ETH.” The business restated that companies trying to comply in good faith with legal requirements are being “pulled out” by the SEC’s continued attempts to categorise Ether as a securities.
It asked a court to declare that ETH is not a security under the Securities Act and that Consensys’s ETH sales are not securities sales in order to obtain official relief.
The case was brought by Consensys in Texas, the state where its Fort Worth offices are located. The state’s federal districts have seen a fair amount of activity in the legal domain concerning cryptocurrencies.
The SEC was sued on April 23 by the Texas-based Blockchain Association and Crypto Freedom Alliance for attempting to expand the Dealer Rule. Riot Platforms and the Texas Blockchain Council sued one other in February for data about energy consumption from cryptocurrency miners.
Even though the SEC hasn’t sued Consensys, a Wells notice may indicate that the commission intends to pursue an enforcement action. The SEC recently concluded a trial in an action against Terraform Labs and Do Kwon. The agency also has civil proceedings pending against Coinbase, Binance, and Ripple.
The US SEC has announced another round of public comments on an expected rule adjustment for trading options on Bitcoin ETPs. The first comments must be sent within 21 days of the document’s official registration, with May 15, 2024 serving as the final deadline.
