- Consensys has sued the SEC for wanting to take action against the firm for its MetaMask products
- The blockchain firm has also asked the court to declare Ethereum as not a security
In a fresh move, Consenys, a blockchain software technology company, has taken the first step in bringing clarity on Ethereum’s status as ‘not a security’. The blockchain company, founded by Ethereum’s co-founder, Joseph Lubin, has sued the United States Securities and Exchange Commission (SEC) and its five commissioners.
Today, Consensys filed a lawsuit against the Securities and Exchange Commission.
The goal behind this is to ensure that Ethereum remains a vibrant and indispensable blockchain platform and to preserve access for the countless developers, market participants, and institutions…
— Consensys (@Consensys) April 25, 2024
A court document reveals that the SEC had issued the firm a Wells Notice on April 10th, notifying the firm of their intention to take enforcement action. The action was concerning MetaMask’s product services – MetaMask Swap and MetaMask Staking. MetaMask is a cryptocurrency wallet developed by Consensys, which focuses on the Ethereum blockchain.
The SEC claimed that the products violated the Securities Act by acting as unregistered broker-dealers. The firm, however, countered this argument by claiming that the Ethereum wallet was just an interface, adding that it does not hold digital assets or process transactions.
Ethereum: To be a security or not to be a security
The legal document also brings notice to the commission’s shifting position on Ethereum’s status. The commission had previously asserted that ETH was not a security. Even the Commodities and Futures Trading Commission (CFTC) backed this claim, by indicating that ETH fell under its jurisdiction as it classified as a commodity.
While the CFTC continues to stand its ground on the matter, the same cannot be said about the SEC. Over the past few months, the SEC has backtracked on its position. Moreover, the commission has stated to lay the foundation to mark the second-largest cryptocurrency by market cap as a security.
Addressing this matter, Consensys’ lawsuit said,
“The SEC’s land grab also violates core principles of due process and fair notice. Essential to due process is the “fundamental principle . . . that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.”
Moreover, the blockchain firm asserted that it “built its business around the Ethereum blockchain (…) years after the SEC assured the public it viewed ETH as outside its domain”. The lawsuit further added that, “Consensys has done so in reliance on the SEC’s and CFTC’s repeated statements that ETH is not a security.”
Through this lawsuit, the firm wants the court to declare “ETH is not a security under the Securities Act and that Consensys’s sales of ETH are not sales of securities under the Securities Act.”
It also wants the court to declare that an enforcement action against the firm based on ETH’s security status as an overreach of authority. The firm is also seeking to have a case against MetaMask deemed as an overreach and prohibit the SEC “from pursuing any investigation or enforcement action premised on ETH transactions being securities transactions”
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