Consensys Sues SEC in Attempt to Classify Ethereum as a Security
Ethereum developer Consensys has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) in response to what the company calls the agency’s “unlawful power grab” over Ethereum.
The company seeks a federal court declaration that Ethereum (ETH) is not a security and that any investigation by the SEC into ConsenSys based on the premise that ETH is a security would “violate” the company’s Fifth Amendment rights and the Administrative Procedure Act, specifically that MetaMask is not a security. According to federal law, MetaMask’s staking services do not violate securities laws, nor does any injunction against SEC investigations or enforcement actions related to MetaMask’s swap or staking functionality.
In a lawsuit filed on Thursday against the SEC and all five commissioners, Consensys revealed that it received a Wells notice from the SEC on April 10, indicating the agency’s intention to take enforcement action against the company for alleged securities law violations through its MetaMask wallet product. Consensys denies acting as a broker and states that the wallet is “simple and interface-driven,” neither holding customers’ digital assets nor executing any transaction functions.
The complaint also notes that the SEC’s overreach into Ethereum contradicts its past statements that cryptocurrencies are commodities, not securities (citing former director Bill Hinman’s 2018 speech), and violates the authority of the SEC’s sister regulatory agency, the Commodity Futures Trading Commission (CFTC), over Ethereum.
Consensys claims in the lawsuit that it “built its business against the backdrop of this regulatory consensus,” and the SEC’s new power grab over Ethereum (which it calls a “sea change”) “violates constitutional requirements of fairness.”
The lawsuit states, “The SEC’s unlawful seizure of power over ETH will bring disaster to the Ethereum network and Consensys.”
A representative of the U.S. Securities and Exchange Commission declined to comment on the lawsuit.
The lawsuit also relies on the “major questions doctrine,” a Supreme Court ruling that prohibits federal regulatory agencies from vastly exceeding the scope of congressional authorization. In disputes brought by Terraform Labs and Coinbase, two judges have already rejected the notion that cryptocurrencies fall under this issue.
Consensys filed the lawsuit in the Northern District of Texas, joining organizations such as the Blockchain Association and companies like Legit Exchange in similar preemptive lawsuits seeking to prevent the SEC from classifying certain crypto companies or assets as securities.
In recent months, the U.S. Securities and Exchange Commission has also filed lawsuits against cryptocurrency exchanges such as Binance.US, Binance, and Kraken. Uniswap Labs revealed earlier this month that it had also received Wells notices from regulators.