ConsenSys sues SEC, may affect Ethereum ETF approval

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ConsenSys sues SEC, may affect Ethereum ETF approval

Against the backdrop of the rapid development of digital currency and blockchain technology, the legal conflict between the U.S. Securities and Exchange Commission (SEC) and cryptocurrency companies has become increasingly fierce.

On Thursday, April 25, U.S. time, Ethereum development company ConsenSys took the SEC to court for attempting to classify Ethereum as a security , which attracted widespread attention. ConsenSys filed the lawsuit in the U.S. District Court for the Northern District of Texas.


ConsenSys wrote in the lawsuit that the SEC is trying to regulate ETH as a security, even though ETH does not have any attributes of a security – even though the SEC has previously stated to the outside world that ETH is not a security and is not within the SECs statutory jurisdiction.

The lawsuit documents revealed that on April 10, 2024, SEC staff sent a Welsh Notice to ConsenSys, stating that it was about to recommend that the Commission bring enforcement action against ConsenSys for violating federal securities laws through its MetaMask Swaps and MetaMask Staking products.

A Wells Notice is a formal notice issued by the U.S. Securities and Exchange Commission (SEC) before initiating an enforcement action. This notice is usually sent to the person or organization under investigation at the end of an investigation to inform them that the SEC intends to recommend enforcement action against them for suspected violations of securities laws. The Wells Notice allows the party receiving the notice to provide a written statement or oral defense to explain or refute the SECs preliminary findings before the SEC makes a final decision. The purpose of this practice is to give the person under investigation a fair opportunity to explain their position or make reasons why enforcement action should not be taken against them.

In summary, the SEC’s legal position is that MetaMask’s Swap and other functions involve trading in unregistered securities, thereby violating federal securities laws. This legal logic is no different from the allegations made in previous lawsuits against exchanges such as Coinbase, Binance, and KuCoin. In other words, if the SEC actually files a lawsuit, the results of the previous cases will directly affect the legal dispute between the SEC and ConsenSys.

ConsenSys logic is that it is very dissatisfied with the SECs ambiguous attitude on whether to regard these tokens as securities, and decided to file a lawsuit in court first, using whether Ethereum is a security as the key point, accusing the SEC of overstepping its authority to regulate commodities that are not securities, and that MetaMask is not doing anything related to securities and therefore does not violate federal securities laws.

At the same time, this result may also directly affect the approval of the Ethereum ETF. If the court rules that Ethereum is a security, then the sales of Ethereum by all institutions in the United States will need to go through a disclosure process similar to that of stocks, which will have a great impact on major exchanges and large holders, and the possibility of the ETF being approved this year will be even slimmer.

Any investigation into ConsenSys based on the view that ETH is a security “would violate” the company’s Fifth Amendment rights and the Administrative Procedure Act, that MetaMask is not a broker-dealer under federal law, that MetaMask’s staking service does not violate securities laws, and that the SEC is prohibited from investigating or bringing enforcement actions against MetaMask’s Swaps or staking features.

Is Ethereum a security? What was the previous attitude?

The U.S. Securities and Exchange Commission (SEC) has stated that Ethereum (ETH) is not a security. In 2018, SEC employee William Hinman gave a speech clarifying that ETH does not constitute a security under regulatory rules. Recognizing that Ethereum lacks any centralized management power, the SECs Director of the Division of Corporation Finance stated that current Ethereum sales are not securities transactions, the lawsuit stated. Hinmans statement about ETH reflects the considered judgment of the SEC and its leadership.

ConsenSys sues SEC, may affect Ethereum ETF approval

The lawsuit records the SECs 2018 claim that Ethereum is not a security. Source: Court documents

ConsenSys’ main argument is that the SEC cannot go back on its word and bring enforcement action against Metamask under securities standards after having once declared that Ethereum is not a security.

“The SEC’s unlawful usurpation of power over ETH will spell disaster for the Ethereum network, as well as ConsenSys,” the lawsuit claims. “The SEC’s new power grab over Ethereum — which it calls an “U-turn” — therefore “violates the Constitution’s fair notice requirement under the Procedural Due Diligence Clause.”

Coindesk reported that a representative for the SEC declined to comment on the lawsuit.

This legal battle not only concerns the future of ConsenSys itself, but may also determine whether the vast majority of cryptocurrencies, including Ethereum, continue to exist as innovative financial tools. As the case progresses, all eyes are on how to balance innovation and regulation and ensure the harmonious coexistence of technological progress and the legal framework.

This article is sourced from the internet: ConsenSys sues SEC, may affect Ethereum ETF approval

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