Newly unveiled court filings expose the US Securities and Exchange Commission's (SEC) stance, led by Chairman Gary Gensler, suggesting Ethereum (ETH) may be an "unregistered security" under the Howey Test, a regulatory approach widely contested by crypto advocates.
The revelation stems from ConsenSys, an Ethereum software company, filing an unredacted complaint against the SEC, as reported by Fox Business.
The disclosed court documents reveal that both Chairman Gensler and the SEC harbor the belief that Ethereum operated as an unregistered security, violating federal regulations, for at least a year.
The SEC's Division of Enforcement, headed by Gurbir Grewal, initiated a formal investigation, termed "Ethereum 2.0," on March 28, 2023. This investigation delved into individuals and entities trading ETH tokens.
Contrary to prior guidance from former SEC Chairman Jay Clayton and Director of Corporation Finance Bill Hinman, who suggested Ethereum and Bitcoin (BTC) were not securities, the SEC's stance, if upheld, would mark a significant shift in regulatory interpretation.
Chairman Gensler's hesitance to clarify Ethereum's regulatory status, particularly following its transition to a proof-of-stake consensus mechanism in September 2022, has stirred concerns within the crypto industry.
The shift in Ethereum's consensus mechanism, where validators stake their holdings, raised questions about its classification, potentially invoking the Howey Test, as suggested by Gensler.
ConsenSys's legal action against the SEC accuses the agency of an "unlawful" attempt to classify ETH as a security.
The lawsuit provides further insights into the ongoing investigation, revealing multiple document requests aimed at understanding ConsenSys' role in Ethereum's transition and its ETH-related activities.
Recent developments indicate an escalation in the SEC's scrutiny, with ConsenSys facing additional document subpoenas and a Wells notice signaling potential enforcement action for allegedly offering unregistered securities, including ETH, via its MetaMask wallet.
ETH's current price stands at $3,170, reflecting a 4% decline in the last 24 hours, amidst struggles to consolidate above $3,200.
SEC's revelation on Ethereum's past status as a security sparks uncertainty over spot Ethereum ETF approval. Consensys' complaint sheds light on Gensler's stance, paralleling Ripple case outcomes.
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CatherineThe SEC said that by offering the MetaMask wallet software, Consensys acted as an unregistered securities broker.
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Cointelegraph