By Michael Scott
Ethereum software firm Consensys sued the US Securities and Exchange Commission (SEC), faulting the regulator’s attempt to exercise control over the crypto ecosystem. The preemptive suit filed on Thursday alleges SEC plots designating Ethereum as security.
The suit by Consensys comes after the Ethereum giant was served a Wells Notice by SEC over MetaMask. The Ethereum startup is behind the development of the MetaMask wallet beside the Infura infrastructure platform.
Consensys Alleges SEC Overreach in Designating Ethereum Security
Consensys submitted that the Gary Gensler-led SEC is overreaching in classifying Ethereum as a security. The preemptive suit aligns with the SEC’s official admission in 2018 that, like Bitcoin, ETH does not deserve security treatment.
The 34-page complaint filed on Thursday faults the Commission’s move to designate ETH security despite the second-largest crypto by market value bearing none of such attributes. The plaintiff illustrates that the SEC has ruled out that ETH possesses security attributes and claims it is beyond the agency’s statutory jurisdiction in a previous instance.
The complaint adds that the securities watchdog issued Consensys a Wells Notice indicative of an intention to level charges over MetaMask. The Wells Notice involves a letter the Commission sends before planning regulatory action.
The awareness of subsequent events following the Wells Notice prompted Consensys to level preemptive charges against the SEC. It seeks a court declaration that Ethereum lacks security attributes.
The suit by Consensys is significant, considering that the Ethereum blockchain powers ETH, which is regarded as the second-largest crypto in market value. Ethereum is utilized by various developers to build decentralized applications, making the preemptive suit outcome critical to the community.
SEC Accused of Plot to Accomplish Regulatory Dominance
The lawsuit illustrates that the SEC plans to attain regulatory dominion over crypto by deploying ad hoc enforcement actions against projects and firms, including Consensys. The complaint decries that Consensys is bound to bear punishment for the enforcement action despite its actions relying on the government’s assurance that ETH is not secure.
The lawsuit by Consensys is critical given that it challenges the SEC’s position to classify Ethereum as a security. The Commission’s stance replicates the actions undertaken against various crypto companies it deemed violating federal laws as offering unregistered securities.
The complaint explains that if the SEC were allowed to designate Ethereum as a security rather than a commodity, several crypto companies, including Consensys, would be judged violating the US securities laws. Consensys submits that other regulators, primarily the Commodity Futures Trading Commission (CFTC), consider Ethereum a commodity.
Consensys’ lawsuit reflects the 2018 incident when the current SEC chair appeared confident when lecturing at the Massachusetts Institute of Technology (MIT). The pronouncement by the SEC official reappeared in April last year as the crypto industry stakeholders questioned the change of tune by the SEC to classify ETH as security.
Consensys Challenges SEC’s Arbitral Expansion of Jurisdiction
Consensys chief executive Joe Lubin hailed the case as a bold move with the intention to preserve access that developers, institutions, and market participants have in the second-largest blockchain. The Ethereum co-founder reiterated the suit’s significance, considering the blockchain’s decentralized nature across the crypto space.
Lubin backed the case by indicating that the SEC should not arbitrarily expand jurisdiction to regulate Ethereum from its prior admission, terming it a commodity.
Lubin is optimistic that the case will yield attention to and halt the reckless approach portrayed by the SEC over crypto. The case is considered a pathway to restoring regulatory certainty and sanity desired by the Web3 technologies.
Meanwhile, the lawsuit comes on the heels of the Ethereum Foundation indicating in February that it received an inquiry from a state authority. A publication by Fortune in March revealed that the SEC submitted the request to the Ethereum Foundation, given its support for the decentralized blockchain network.
Like Consensys, Ethereum-based decentralized exchange (DEX) Uniswap revealed earlier in April that SEC served it with a Wells Notice. It indicated that the SEC was likely to enforce action against Uniswap.
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