It turns out that the U.S. Securities and Exchange Commission (SEC) has been investigating Ethereum for a whole year. Yes, the important figures at the SEC have been closely examining Ethereum, attempting to determine whether it should be classified as a security since 2023.
Last week, the spotlight on Ethereum intensified when Consensys, the company behind Ethereum software, decided they had had enough and filed a lawsuit against the SEC. They are quite angry about how the SEC has been handling the situation, especially considering that the SEC has been investigating Ethereum since the early days of 2023.
Let’s delve into the details a bit. The entire situation started to unravel when the SEC, under the watchful eye of Gurbir Grewal, the director of the Division of Enforcement, approved an investigation into the buying and selling of Ethereum in March 2023. They didn’t stop there; they took official action with subpoenas and gathering sworn testimonies.
During a Congressional testimony, SEC Chairman Gary Gensler played it coy and avoided directly addressing whether Ethereum is a commodity or security. However, behind the scenes, the SEC had already ramped up their investigation and deemed Ethereum a security, although they hadn’t made this public knowledge.
Consensys, in their legal battle, argues two main points. First, they firmly believe that Ethereum is not a security and criticize the SEC’s investigation as inappropriate. Second, they claim that the SEC has a vendetta against their MetaMask product, implying that it is some sort of broker-dealer setup. They even received a Wells notice, which is essentially the SEC’s way of saying, “We might come after you.” However, none of this Wells drama specifically accuses Ethereum.
The legal battles in 2023 were not only about Ethereum. The SEC also targeted Coinbase and Binance, labeling over ten different assets as securities. However, Ethereum managed to avoid this scrutiny.
If we look back to 2018, we find that the SEC had a different stance. At that time, Bill Hinman, the then-CFO, stated that Ethereum, just like Bitcoin, was not a security. Fast forward to now, and the SEC seems to believe that Ethereum’s recent updates, such as the Merge, might push it into the security category.
This legal entanglement also delves into Ethereum’s past activities. Consensys is being questioned about its role in Ethereum’s proof-of-stake updates, as well as all the operational details like acquisitions and sales. The SEC is quite convinced that even before Ethereum’s significant Merge in 2018, there were security sales taking place.
To add to the drama, Consensys is not sitting idly by. They are fighting back to prevent the SEC from interfering in Ethereum’s operations. They initiated their legal counterattack right after the SEC presented them with the Wells notice, indicating a potential crackdown on their MetaMask wallet services.