Consensys, a software development company, has taken legal action against the United States Securities and Exchange Commission (SEC) and its five commissioners, accusing them of intending to regulate Ethereum (ETH) as a security. The lawsuit, filed on April 25 in the U.S. District Court for the Northern District of Texas, claims that the SEC’s actions to regulate ETH would have severe consequences for the Ethereum network and Consensys. The company argues that changing the SEC’s position on ETH after businesses have already been established based on existing regulations would be detrimental to the industry.
Consensys specifically highlights the SEC’s focus on its MetaMask wallet software, which allows users to store ETH and other cryptocurrencies securely. The company received a Wells notice from the SEC on April 10, warning of potential enforcement actions related to its MetaMask Swaps and MetaMask Staking products. Furthermore, the SEC accused Consensys of operating as an unregistered broker-dealer during a phone conference.
The lawsuit targets all five SEC commissioners, including Chair Gary Gensler, who has made inconsistent statements regarding ETH. During a hearing in April 2023, Gensler avoided answering questions about whether ETH falls under the SEC’s regulatory jurisdiction. This is despite his previous statement in 2018, when he was a university professor, asserting that Ether was not a security.
Consensys claims that it has received three subpoenas in 2023 regarding the acquisition, holdings, and sales of ETH. The company argues that the SEC’s efforts to classify ETH as a security undermine firms’ attempts to comply with regulatory guidelines. It seeks relief from the court by declaring that “ETH is not a security under the Securities Act and that Consensys’s sales of ETH are not sales of securities.”
The lawsuit was filed in Texas, where Consensys has its headquarters. The state’s federal districts have seen several crypto-related legal cases recently. In April, the Blockchain Association and Crypto Freedom Alliance of Texas sued the SEC over its Dealer Rule expansion efforts. In February, the Texas Blockchain Council and Riot Platforms filed a lawsuit regarding information on energy usage by crypto miners.
Although no lawsuit has been filed against Consensys by the SEC at the time of publication, receiving a Wells notice often indicates the commission’s intention to initiate enforcement actions. The SEC is currently involved in civil cases against Coinbase, Binance, and Ripple, and it recently concluded a trial against Terraform Labs and Do Kwon.
In light of these legal developments, the role of SEC Chair Gary Gensler in crypto regulation has come under scrutiny. His inconsistent statements regarding the classification of ETH as a security have raised questions about his authority to determine the regulatory status of cryptocurrencies.