Consensys sues SEC over attempt to classify Ethereum as a security

Author: Cheyenne Ligon, Nikhilesh De, CoinDesk; Translator: Baishui, Golden Finance

Ethereum developer Consensys has filed a lawsuit against the U.S. Securities and Exchange Commission, fighting back against what the company calls an "illegal power grab" by federal regulators over Ethereum.

The company wants a federal court to declare that Ethereum (ETH) is not a security and that any investigation into ConsenSys based on the view that ETH is a security "would violate" the company's Fifth Amendment rights and the Administrative Procedure Act, which states that MetaMask is not a security. Under federal law, MetaMask's staking service does not violate securities laws and injunctions against SEC investigations or enforcement actions related to MetaMask's swap or staking features. In a lawsuit filed Thursday against the SEC and all five of its commissioners, Consensys revealed that it received a Wells Notice from the SEC on April 10, indicating its intention to take enforcement action against the company for securities violations through its MetaMask wallet product. Consensys denies acting as a broker and says the wallet is “simple and interface-free” and “neither holds customers’ digital assets nor performs any trading functions.” The complaint also adds that the SEC’s intrusive authority over Ethereum goes against its past statements that the cryptocurrency is a commodity, not a security (citing a 2018 speech by former director Bill Hinman), as well as the authority the SEC’s sister regulator, the Commodity Futures Trading Commission (CFTC), has over Ethereum.

Consensys claims in the lawsuit that it “built its business against the backdrop of this regulatory consensus” and that the SEC’s new power grab over Ethereum, which it calls a “U-turn,” “violates constitutional requirements of fairness.”  

“The SEC’s unlawful power grab over ETH will spell disaster for the Ethereum network and Consensys,” the lawsuit states.

A representative for the SEC declined to comment on the lawsuit.

The lawsuit also relies on the “substantial question doctrine,” a Supreme Court ruling that prohibits federal regulators from significantly exceeding the scope of congressional authorizations. In arguments raised by Terraform Labs and Coinbase, two judges have already rejected the idea that cryptocurrency falls under that question.

ConsenSys filed the lawsuit in the U.S. District Court for the Northern District of Texas, joining groups such as the Blockchain Association and companies such as Legit Exchange, which have filed similar preemptive lawsuits seeking to prevent the SEC from deeming certain crypto companies or assets as securities.

In recent months, the SEC has also filed lawsuits against cryptocurrency exchanges such as Binance.US, Binance and Kraken. Uniswap Labs revealed earlier this month that it had also received a Wells Notice from the regulator.