ConsenSys filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) on April 25, alleging that the watchdog overstepped its authority in trying to regulate Ethereum (ETH).
The complaint alleges that the SEC seeks to illegally regulate Ethereum through enforcement actions against various companies, including ConsenSys, which constitutes “aggressive and unlawful” overreach.
ConsenSys intends to prove that the SEC does not have the legal authority to regulate ETH, user-controlled software interfaces, or the broader Ethereum blockchain.
ConsenSys is asking the court to declare that Ethereum is not a security and that it does not act as a broker or sell securities through MetaMask. It also asks the court to declare that any legal action or investigation based on these grounds is beyond the SEC's authority.
Additionally, ConsenSys is seeking an injunction to prevent the SEC's continued investigation or future enforcement actions into the MetaMask wallet and related ETH sales. The SEC warned ConsenSys of possible legal action through a Wells notice and conference call on April 10. MetaMask's staking and swap functionality is an area of concern.
Tripartite argument
There are three aspects to this lawsuit. ConsenSys initially argued that the SEC has jurisdiction only over securities and has long agreed that ETH is not a security.
ConsenSys then argued that the SEC's approach misclassifies non-financial platforms as financial applications. He argued that ETH supports applications on Ethereum and therefore has non-financial utility apart from its role as a commodity. The company also said the SEC does not have the authority to regulate Internet technology development in that way.
Finally, ConsenSys argued that MetaMask and other applications are not stock brokers, but rather enable users to buy, sell, and transfer ETH through broad access.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas, names the SEC and its Chairman Gary Gensler as defendants.
wider impact
Whether the SEC considers Ethereum to be a security has been a long-standing issue, and this issue has implications for the compliance efforts of companies and projects that handle ETH.
Fortune reported on March 20 that the SEC has subpoenaed a number of crypto companies affiliated with the Ethereum Foundation. The Ethereum Foundation itself appears to have received a subpoena from unknown state authorities at the time of this report.
Uniswap, a company in the Ethereum ecosystem, received a Wells Notice on April 10th warning of possible charges. However, it is unclear whether the SEC's potential charges against Uniswap are directly related to ETH.
Whether the SEC treats ETH as a security may also impact the approval of the Spot Ethereum ETF. SEC Chairman Gary Gensler identified Bitcoin as a non-security instrument when he approved the Spot Bitcoin ETF in January, emphasizing that the current decision applies only to the asset.
