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Consensys Wins Expedited Court Review in Fight Against SEC’s Alleged Regulatory Overreach

Last Updated July 3, 2024 10:28 AM
Giuseppe Ciccomascolo
Last Updated July 3, 2024 10:28 AM
Key Takeaways
  • The SEC’s surprise attack on Consensys highlights their aggressive stance towards regulating the crypto industry.
  • Consensys is taking an offensive approach by suing the SEC and pushing for a swift resolution by year-end.
  • The outcome of this case will significantly impact the crypto industry.

The US Securities and Exchange Commission (SEC) surprised Consensys by going on the offensive and serving it with a Wells Notice  for allegedly breaking securities laws through MetaMask, its most popular product that serves 30 million users.

Instead of waiting for the SEC to dictate the case, Consensys is looking to speed things up  and resolve the case before year-end by launching an offensive of its own.

Protecting The Ethereum Ecosystem

As part of its effort to “protect the Ethereum ecosystem,” Consensys has successfully convinced a Texas judge to set a year-end timeline for its case against the SEC. The court proceedings will take place from July 29 to November 26. This would potentially lead to a decision by the end of this year or early next year.

The judge has agreed to promptly review whether the SEC has the legal authority to regulate MetaMask, a Consensys product, as a securities broker and issuer. This review will also consider any arguments the SEC may present against Consensys’ claims.

Consensys’ lawyer Bill Hughes said: “Judge O’Connor granted our request that he consider the merits of our case on an expedited basis: whether the SEC has Congressional authority to regulate MetaMask as a securities broker and issuer.

“Those questions would be considered alongside any arguments the SEC would make that we don’t get to bring a case against them,” Hughes added.

In a recent update , Consensys shared: “We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask. We will continue to vigorously pursue our case in Texas for ruling on these issues because it matters not only to our company but the future success of web3.”

SEC vs Consensys Timeline

On June 28, 2024, the SEC charged Consensys Software with the unregistered offering and selling securities through MetaMask Staking. It also accused it of operating as an unregistered broker via MetaMask Staking and MetaMask Swaps.

The SEC alleges that, since January 2023, Consensys has sold unregistered securities on behalf of Lido and Rocket Pool. The latters issue liquid staking tokens (stETH and rETH) in exchange for staked assets. Consensys allegedly acted as an unregistered broker by participating in these transactions.

SEC Enforcement Director Gurbir S. Grewal stated that Consensys collected millions in fees as an unregistered broker, depriving investors of federal securities law protections. The regulator also claims that, since October 2020, Consensys has brokered crypto asset securities transactions by soliciting investors and providing pricing information. It also accepted orders and received transaction-based compensation.

On July 1, 2024, Consensys said : “This is just the latest example of its regulatory overreach. A transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit. We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask. We will continue to vigorously pursue our case in Texas for ruling on these issues because it matters not only to our company but the future success of web3.”

Enforcement Campaign Against Crypto Industry

The SEC’s fight with Consensys isn’t a one-off. They’ve been increasingly active in regulating the crypto industry, particularly through enforcement actions.

This includes high-profile cases against Kraken in February 2024 and Coinbase in January 2023, both centered on accusations that their staking programs offered unregistered securities. Interestingly, the SEC’s stance on staking may have indirectly influenced the recent approval of several Ethereum ETFs on May 23rd, 2024.

If these ETF issuers hadn’t excluded Ethereum staking from their proposals, they likely wouldn’t have received the green light. This suggests the SEC’s enforcement actions significantly impact how regulators view crypto assets.

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