Software development company Consensys filed a lawsuit against the United States Securities and Exchange Commission (SEC) and its five commissioners over claims they plan “to regulate ETH as a security.”
In an April 25 filing in the U.S. District Court for the Northern District of Texas, Consensys alleged the SEC had orchestrated a campaign “to seize control over the future of cryptocurrency” with enforcement actions aimed at regulating Ether (ETH) as a security. The company cited the SEC’s record — also referring to Chair Gary Gensler’s statements — of declaring ETH was not a security as early as 2018, warning of the potential ramifications of the commission changing its position after firms had built businesses based on regulatory precedent.
“The SEC’s unlawful seizure of authority over ETH would spell disaster for the Ethereum network, and for Consensys,” said the filing. “Every holder of ETH, including Consensys, would fear violating the securities laws if he or she were to transfer ETH on the network. And the ability of anyone new to acquire ETH to use Ethereum’s repository of decentralized applications and services would be extinguished. This would bring use of the Ethereum blockchain in the United States to a halt, crippling one of the internet’s greatest innovations.”
Consensys alleged that the SEC had “trained its sights” on the firm’s MetaMask wallet software, which allows users to self-custody ETH and other cryptocurrencies. The company said in the filing that they received a Wells notice from the SEC on April 10, warning of potential enforcement actions related to its MetaMask Swaps and MetaMask Staking products. It added that the SEC said in a phone conference that Consensys was operating as an unregistered broker-dealer.
Though the lawsuit specifically named all five SEC commissioners in their official capacity, it also targeted Gensler’s inconsistent statements on Ether. The SEC chair ducked questions on whether ETH was under the commission’s regulatory reach in an April 2023 hearing, despite saying in 2018 — when he was a university professor — that Ether was not a security.
According to Consensys, the firm received three subpoenas in 2023 regarding requests for information related to “acquisitions, holdings, and sales of ETH.” The company reiterated that the SEC’s ongoing efforts to classify Ether as a security “pull the rug out” from firms attempting to operate in good faith with regulatory guidelines. It requested official relief by having a court declaring “ETH is not a security under the Securities Act and that Consensys’s sales of ETH are not sales of securities.”
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Consensys filed the lawsuit in Texas, where the company maintains a headquarters in Fort Worth. The state’s federal districts have been a bit of a hotspot for crypto-related legal matters. On April 23, the Blockchain Association and Crypto Freedom Alliance of Texas sued the SEC over expansion efforts to its Dealer Rule. In February, the Texas Blockchain Council and Riot Platforms filed a lawsuit over information on energy usage from crypto miners.
Though the SEC had not filed a lawsuit against Consensys at the time of publication, a Wells notice can sometimes be a sign that the commission plans to bring an enforcement action. The SEC has ongoing civil cases against Coinbase, Binance and Ripple and recently wrapped up a trial in an action against Terraform Labs and Do Kwon.
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