By Michael Scott
The former chief of the New Jersey Bureau of Securities (BOS), Christopher Gerold, indicated that the lawsuit filed by Consensys cannot deter the US Securities and Exchange Commission (SEC) from bringing a suit of its own.
Gerold, now a partner at Lowenstein Sandler LLP, weighed on the legal salvo filed in Texas by the blockchain software firm Consensys that placed SEC on the defensive. The former regulator noted that the preemptive suit cannot deter the SEC from leveling charges anywhere, given its national reach.
SEC Could File Charges in Favorable Jurisdiction Outside Texas
The preemptive lawsuit opened in Texas federal court seeks a definitive determination of the regulatory status of Ethereum. Gerold considers the move initiated by Consensys within the Lone Star state hardly constitutes the final legal showdown involving the second-top crypto since SEC has national reach.
Gerold illustrates that the SEC could bring the case in a different jurisdiction. The Gary Gensler-led SEC can easily level the charges alleging the sale of unregistered securities within favorable jurisdiction, including New York, California, or Washington, DC.
The complaint by Consensys alleges that the SEC has secretly perceived Ethereum as a security for over 12 months. The MetaMask maker seeks judicial pronouncement that declares Ethereum not a security.
Consensys chief executive, Ethereum co-founder Joe Lubin, explained in a Thursday brief that the lawsuit seeks clarity from the US courts. Gerold observes that the legal tussle in Texas cannot single-handedly bring clarity.
SEC Unbound by Consensys Lawsuit
Gerold observes that Texas has multiple judges concerned about the federal agencies’ overreach in their role. The experienced attorney indicates that one would bring the case to the anti-regulation.
Gerold states that it was strategic for Consensys to file the lawsuit within the Northern District Court of Texas, where the judge proved contentious. The move does not hinder the SEC from identifying a favorable legal turf where it would file a separate lawsuit.
Gerold warned that if the securities watchdog desired to find Ethereum as a security, they would not wait or leverage the Consensys lawsuit. He adds that the Ethereum classification could be seen as a security varying relative to the jurisdiction relative to how the higher courts rule since such decisions are appealed.
Gerold considers that a legality in New Jersey could attract illegal classification in Texas. He added that federal circuit courts have, in the past, illustrated that the positions of others do not bind them.
Gerold held that the patchwork of case laws is cemented whenever the US Supreme Court fails to consider whether Ethereum is a security. Congress could often intervene by enacting new laws dictating digital asset treatment.
The SEC is yet to file any charges that Consensys alleges could occur relating to Ethereum-centered status. Gerold predicts that the SEC will prioritize dismissing the case without disclosing the internal thoughts on the Ethereum classification.
Consensys Preemptive Lawsuit Unable to Deter SEC Filing Charges
Gerold illustrates that the SEC could file the lawsuit after the Wells Notice recently issued to the Consensys, as demonstrated in the Coinbase case. A Wells Notice often precedes the formal charges the SEC levels against the firm.
Gerold considers that the regulatory matter regarding Ethereum’s legal status could take several years till their full settlement. The issue could witness multiple directions emerging in different courtrooms.
Gerold indicates that the Consenys case could pursue different paths. He labels the belief that Consensys’ offensive lawsuit will yield a definitive declaration on Ethereum’s legal status as a typical fallacy. The former BOS chief considers that the Texas suit alone cannot constitute the determinative forum for Ethereum.
Gerold’s reflection on Consensys’ offensive lawsuit coincides with the revelation that Robinhood Markets received a Wells Notice from the SEC. The enforcement action notice affirms regulator plans to level charges over crypto tokens listed and traded on the platform.