Consensys faces the SEC: lawsuit over the definition of Ethereum

Consensys SEC


  • Consensys has sued the SEC to have a federal court declare that Ethereum (ETH) is not a financial security and to prevent investigations and enforcement actions based on that classification, arguing that it would violate constitutional rights and the Administrative Procedures Act.
  • The company argues against the SEC’s authority over Ethereum, citing contradictions with previous statements from the SEC and CFTC that classify Ethereum as a commodity, not a security, highlighting an abrupt change in regulatory stance that they consider unfair.
  • Consensys also highlights the “big question doctrine,” a legal principle that limits the expansion of federal regulators’ power beyond what is explicitly provided by Congress, supporting its case with examples of judicial rejection in similar situations with other insurance companies. cryptocurrencies.

Ethereum developer Consensys has filed a lawsuit against the United States Securities and Exchange Commission (SEC), alleging an “unlawful seizure of authority” over Ethereum by the federal regulator. This legal action seeks to have a federal court declare that ETH is not a financial security and that any investigation of ConsenSys based on the idea that ETH is a security would “violate” the company’s Fifth Amendment rights and the Administrative Procedures Law. Additionally, they seek to assert that MetaMask is not a broker under federal law and that MetaMask’s staking service does not violate securities laws, along with an injunction prohibiting the SEC from investigating or initiating enforcement actions related to the functions of MetaMask Swaps or Staking.

Background to the Dispute: Wells Notice and Consensys Defense

On Thursday, in the complaint filed against the SEC and its five commissioners, Consensys revealed that it received a Wells Notice from the SEC on April 10, indicating its intention to initiate an enforcement action against the company for violating securities laws through of your MetaMask wallet product. Consensys denies acting as a broker, stating that the wallet is “simply an interface” and that it “does not hold customers’ digital assets or perform transaction functions.”

Consensys Allegations: The Fight for Regulatory Autonomy

The lawsuit adds that the SEC’s growing authority over Ethereum contradicts its own previous statements that the cryptocurrency is a commodity, not a security (citing former Director Bill Hinman’s speech in 2018), as well as the regulatory agency’s own authority. The SEC’s sister, the Commodity Futures Trading Commission (CFTC), which oversees ether-linked derivative products. Consensys claims that it “built its business in the context of this regulatory consensus,” and that the SEC’s new attempt at power over Ethereum would constitute a “violation of the constitutional requirement for fair notice under the Due Process Clause.”

Potential Impact and Reactions

“The SEC’s unlawful seizure of authority over ETH would be a disaster for the Ethereum network and for Consensys,” the lawsuit states. A representative for the SEC has declined to comment on the lawsuit. Additionally, the lawsuit relies on the “big question doctrine,” a Supreme Court rule that prevents federal regulators from dramatically exceeding the scope of their congressional mandates. Two judges have already rejected the idea that cryptocurrencies fall under this doctrine during arguments presented by Terraform Labs and Coinbase.