The Texas court has tossed Consensys' case against the SEC. (Photo By; Riccardo Savi/Getty Images for Concordia Summit)
- The SEC launched a surprise attack on Consensys for allegedly breaking securities laws.
- Consensys took an offensive approach by suing the SEC and pushing for a swift resolution by year-end.
- The Texas court has dismissed Consensys’ lawsuit against the SEC.
In June, 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 launched an offensive of its own to speed things up and resolve the case before year-end. However, it didn’t end how it expected.
Court Dismisses Consensys Lawsuit
A Texas court dismissed Consensys’ lawsuit against the SEC on procedural grounds. However, Consensys remains committed to defending blockchain developers’ rights and plans to continue its legal battle in Brooklyn.
“Our suit against the SEC laid bare the overzealous investigation of Ethereum, and policymakers and the public at large voiced deep concern over the SEC’s investigation of blockchain software development,” Consensys said in an X post .
It added that, in a significant win for the industry, the SEC dropped its “Ethereum 2.0” investigation after Consensy’s litigation was filed, and the Texas court recognized that the Commission already gave Consensys the relief it sought on that critical issue for the Ethereum ecosystem.
“Outside of court, we have also seen signs of what could be a momentous step-change in Washington’s sentiment towards cryptocurrencies and digital assets during a crucial period for U.S. politics. We are on the right path, but must remain vigilant,” Consensys added.
SEC vs Consensys Timeline
First Offence
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 alleged that, since January 2023, Consensys had sold unregistered securities on behalf of Lido and Rocket Pool. The latter issued 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 claimed 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.”
Consensys Fights Back
Following the SEC’s offense, Consensys successfully convinced Texas Judge Reed O’Connor to set a year-end timeline for its case against the regulator.
The court proceedings would have taken place from July 29 to Nov. 26, potentially leading to a decision by the end of this year or early next year.
The judge initially agreed to promptly review whether the SEC has the legal authority to regulate MetaMask as a securities broker and issuer and 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.”
On Sept. 19, the Texas court ultimately dismissed Consensys’ lawsuit against the SEC on procedural grounds.
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 23, 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.
Ethereum Could Secure Future in Someone Else’s Court Case as Consensys Sues SEC
ConsenSys Founder Joe Lubin: Everything About Ethereum Must Improve
