US United States Securities and Exchange Commission. Source: Kristina Blokhin - stock.adobe.com

Key Takeaways:

Consensys Lawsuit Against SEC: Consensys has filed a lawsuit against the SEC, alleging overreach in its attempt to classify Ethereum (ETH) as a security, which diverges from prior SEC assurances that ETH was not considered a security.
Potential Consequences of Reclassification: The lawsuit expresses concerns that reclassifying ETH as a security could halt Ethereum transactions in the U.S., stifling innovation and crippling the Ethereum network.
Regulatory Uncertainty and Legal Action: Amidst regulatory uncertainty highlighted by conflicting statements from SEC Chair Gary Gensler, Consensys is seeking judicial relief to confirm that ETH is not a security and that its sale does not constitute a sale of securities.

Software development company Consensys has initiated a lawsuit against the United States Securities and Exchange Commission (SEC) and its five commissioners.

The lawsuit, filed on April 25 in the U.S. District Court for the Northern District of Texas, accuses the SEC of attempting to classify Ethereum (ETH) as a security, a move that marks a significant departure from their previous stance.

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

Consensys claims the SEC is overreaching in its regulatory attempts, particularly targeting the future of cryptocurrencies.

The lawsuit states that the SEC had previously confirmed as early as 2018, through statements by SEC Chair Gary Gensler, that ETH was not considered a security.

This established regulatory precedent had allowed firms to build their businesses with certain legal assurances.

Crypto firm Consensys sue the SEC and say Ethereum should not be deemed a security 🇺🇸 pic.twitter.com/XSDkT9w21Y
— Crypto Crib (@Crypto_Crib_) April 26, 2024

However, the SEC’s recent actions suggest a shift in their approach, which could have severe consequences for the Ethereum network and Consensys.

According to the filing, the potential reclassification of ETH as a security could be catastrophic, leading to a halt in transactions within the network and stifling innovation.

“This would bring use of the Ethereum blockchain in the United States to a halt, crippling one of the internet’s greatest innovations.” the document expressed.

Additionally, Consensys highlighted concerns over its MetaMask wallet software, which facilitates user self-custody of ETH and other cryptocurrencies.

On April 10, Consensys received a Wells notice from the SEC, indicating possible enforcement actions regarding its MetaMask Swaps and MetaMask Staking products, allegedly operating as an unregistered broker-dealer.

The lawsuit also points to contradictory statements made by Gensler regarding Ether’s regulatory status.

Despite his avoidance of direct answers in a recent hearing in April 2023, Gensler had previously, as a university professor in 2018, openly stated that Ether was not a security.

In response to these regulatory challenges, Consensys is seeking judicial relief, asking the court to officially declare that ETH is not a security under the Securities Act and that the sale of ETH by Consensys does not constitute a sale of securities.

The legal actions by Consensys in Texas, where it has a major office, are part of a broader trend of crypto-related legal challenges in the state.

Recent lawsuits in the region have targeted SEC regulations, notably involving the Blockchain Association and Crypto Freedom Alliance of Texas, as well as the Texas Blockchain Council and Riot Platforms concerning crypto miners’ energy use.

Today, Consensys took an important step towards preserving access to ether and by extension the Ethereum blockchain in the U.S. We are suing the SEC and fighting back against its overzealous regulatory overreach. You can find more of my thoughts here: https://t.co/VmvOsrCxjw… https://t.co/5IubZo69FW
— Joseph Lubin (@ethereumJoseph) April 25, 2024

While the SEC has not yet brought a formal enforcement action against Consensys, the Wells notice is often a precursor to such actions.

The SEC is also engaged in ongoing civil litigation with other major cryptocurrency platforms like Coinbase, Binance, and Ripple, and has recently concluded a trial with Terraform Labs and Do Kwon.