SEC and Gary Gensler considered Ether a security for at least a year, new court docs show
The SEC and its Chair, Gary Gensler, have been under the impression that Ether (ETH) was a security for a period of one year, as indicated by recent discoveries on Monday.
According to a complaint filed by Consensys Software Inc., the Director of Enforcement at the SEC, Gurbir Grewal, initiated an inquiry into “Ethereum 2.0” on March 28, 2023. The investigation was regarding the potential offering and sale of certain securities, specifically ETH, without a registration statement in effect since at least 2018. No exemption was available for these transactions.
SEC & Gensler: ETH as Potential Security
The submission appears to oppose the previous position of the federal agency regarding ETH, as they had previously approved ETH Future ETFs in October 2023.
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Some folks are confused, as to why the SEC "Eth is a security timeline" and the "Futures ETF" is bad for the SEC.
Here's a quick breakdown of why it paints Gensler into a corner:
— Adam Cochran (adamscochran.eth) (@adamscochran) April 29, 2024
According to sources, Gensler has refrained from commenting on the current classification status of ETH, but has been under scrutiny for the SEC’s approach of regulating through enforcement in regards to crypto companies.
In June 2028, Bill Hinman, who was the then-Director of Corporation Finance at the SEC, made a widely-known statement claiming that ETH was not classified as a security.
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"Futures" historically were on commodity assets, and so the administration of those futures fell to the CFTC (Commodity Futures Trading Commission).
This is the only thing the CFTC is concerned with, as spot commodity trading isn't regulated in the US.
— Adam Cochran (adamscochran.eth) (@adamscochran) April 29, 2024
In the filing, the SEC has informed Consensys that they are conducting an investigation into the potential securities transactions involving ETH, which were conducted by Consensys using their own holdings as part of their regular treasury operations.
Additionally, the SEC has asked Consensys to provide a “proffer” explaining their reasoning for considering their ETH sales to not fall under securities transactions.
SEC Action Expected After Ethereum 2.0 Probe?
Consensys, a blockchain development company, has officially initiated a lawsuit against the SEC for their efforts to regulate Ethereum (ETH) as a security. This legal action was taken before the recent court filings on Monday.
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
On April 25, 2024, Consensys took legal action against the SEC in order to safeguard the vitality and essentiality of Ethereum as a blockchain platform, and to maintain accessibility for numerous developers, market participants, and institutions.
According to a blog post from Joe Lubin, the founder of Consensys, he believes that the SEC should not have the power to expand their jurisdiction in order to regulate the future of the internet.
He also states that the agency’s careless actions are causing confusion and disruption for individuals, organizations, and countries who are involved in developing or utilizing essential systems on the Ethereum platform.
Over the past few weeks, there have been reports stating that several businesses associated with the Ethereum Foundation were requested to disclose details about the Swiss non-profit organization through subpoenas.
In March, a GitHub repository comment revealed that the foundation had been reached out to by an unspecified “government entity”. After being served with a Wells notice on April 10, it seems inevitable that the SEC will pursue legal action against Consensys.
Potential Consequences for Crypto Participants
The resolution of Consensys’ lawsuit against the SEC regarding Ethereum’s regulatory status could significantly impact not only those directly involved in Ethereum but also various stakeholders within the wider crypto industry.
Furthermore, the SEC’s stance on Ethereum being an unregistered security adds another layer of complexity and uncertainty to the ongoing debate about the regulatory framework for cryptocurrencies in the United States, potentially impacting both Ethereum-focused organizations and the broader crypto market.
About the SEC
The Securities and Exchange Commission (SEC) serves as the regulatory body overseeing the securities industry within the United States.
Tasked with monitoring transactions and the conduct of financial professionals, its core objectives include fostering fairness, integrity, and transparency, as well as preventing fraud and deceptive practices while maintaining the orderly functioning of markets.
Established in response to the 1929 stock market crash, the SEC was instituted as part of the Securities Exchange Act of 1934, aimed at restoring confidence in capital markets. Central to its mandate was the provision of accurate information to both corporate and retail investors, alongside the enforcement of fair and honest dealings among individuals and corporations.
