Consensys Alleges SEC Covertly Targeted Ethereum, Sparking Legal Battle

The US Securities and Exchange Commission (SEC) has been scrutinizing the nature of Ethereum and whether it should be classified as a security, according to new details emerging from court documents released on Monday.

What Happened: This investigation has been ongoing for over a year, unbeknownst to many in the crypto community until now.

Last week, blockchain technology company Consensys filed a lawsuit against the SEC, claiming that the agency has been secretly building a case to reclassify Ethereum ETH/USD — from previously being considered a commodity — to a security since early 2023.

According to the lawsuit, Gurbir Grewal, the SEC’s director of the division of enforcement, sanctioned a Formal Order of Investigation into Ethereum transactions in March 2023.

This order enabled the SEC to issue subpoenas and gather testimony under oath, escalating the level of scrutiny on Ethereum.

The revelation helps explain why SEC Chairman Gary Gensler dodged a direct answer during an April 2023 Congressional testimony when questioned about Ethereum's classification.

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“He did not want to admit that his SEC had already secretly cemented its power-grab by issuing an order of investigation designating ETH as a security,” stated Consensys in the unredacted complaint.

The lawsuit by Consensys outlines two primary allegations: firstly, that Ethereum is not a security and, thus, the SEC's ongoing investigation is baseless; secondly, that the SEC is wrongfully targeting Consensys for its popular MetaMask product, which the SEC considers a broker-dealer.

Further complicating matters, Consensys received a Wells notice indicating the SEC’s intention to pursue enforcement action for alleged securities law violations concerning its MetaMask Swaps and Staking products.

Notably, this notice did not specify charges directly related to Ethereum.

This lawsuit comes in the backdrop of the SEC's broader approach to cryptocurrencies, where it has previously listed certain tokens as securities in its legal actions against major exchanges like Coinbase and Binance.

However, Ethereum was not mentioned as a security in these cases, underscoring the ambiguous and evolving regulatory stance on various digital assets.

What’s Next: As this legal confrontation unfolds, its implications for the crypto market are vast and will likely be a significant topic of discussion at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.

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