Ethereum developer Consensys has filed a lawsuit against the U.S. Securities and Exchange Commission, striking back against what the company calls an “unlawful seizure of authority” over Ethereum by the federal regulator.
The company wants a federal court to declare that ETH (ETH) is not a security, 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 Act, that MetaMask is not a broker under federal law, that MetaMask’s staking service does not violate securities law and an injunction against the SEC investigating or bringing an enforcement action tied to MetaMask’s Swaps or Staking functions.
In the complaint filed Thursday against the SEC and all five of its commissioners, Consensys revealed it received a Wells notice from the SEC on April 10, indicating its intention to bring an enforcement action against the company for violating securities laws via its MetaMask wallet product. Consensys denies that it acts as a broker, stating that the wallet is “simply and interface” and “neither holds customers’ digital assets nor carries out any transaction functions.”
The complaint adds that the SEC’s encroaching authority over Ethereum goes against its own past statements that the cryptocurrency is a commodity, not a security (citing former director Bill Hinman’s 2018 speech), as well as the SEC’s sister regulatory agency, the Commodities Futures Trading Commission (CFTC), own authority over Ethereum, which oversees derivative products tied to ether.
In its suit, Consensys claims that it “built its business against the backdrop of this regulatory consensus”, and the SEC’s new grab for power – which it calls an “about-face” – over Ethereum would therefore “violate the Constitutional requirement of fair notice under the Due Process Clause.”
“The SEC’s unlawful seizure of authority over ETH would spell disaster for the Ethereum network, and for Consensys,” the suit claims.
A representative for the SEC declined to comment on the suit.
The suit also leans on the “major questions doctrine,” a Supreme Court ruling barring federal regulators from dramatically exceeding the scope of their Congressional mandates. Two judges have already rejected the idea that crypto falls under the doctrine during arguments brought by Terraform Labs and Coinbase.
ConsenSys filed the suit in the District Court for the Northern District of Texas, joining groups like the Blockchain Association and companies like Legit Exchange, which filed similar preemptive suits seeking to block the SEC from treating certain crypto companies or assets as securities.
In recent months, the SEC has also brought suits against crypto exchanges like Binance.US, Binance and Kraken. Uniswap Labs revealed earlier this month it had also received a Wells Notice from the regulator.
UPDATE (April 25, 2024 at 19:41 UTC): Adds that the SEC declined to comment.
