SEC Files Lawsuit Against Consensys Over Unregistered Brokerage Activities

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Consensys, alleging significant violations of federal securities laws.

The SEC claims that Consensys failed to register as a broker and did not register the offer and sale of securities, leading to substantial investor protection concerns.

Allegations Against Consensys

The SEC’s complaint highlights two main services provided by Consensys: MetaMask Swaps and MetaMask Staking.

According to the SEC, MetaMask Swaps operated as an unregistered broker for crypto asset securities, while MetaMask Staking engaged in unregistered securities offerings.

These services facilitated over 36 million crypto asset transactions, including 5 million involving crypto asset securities, all without proper registration.

MetaMask Swaps And Staking

MetaMask Swaps allowed users to trade various crypto assets by sourcing the best exchange rates from approximately 14 third-party liquidity providers.

The platform handled these trades through Consensys’ smart contracts, ensuring seamless asset transfers and customer asset management.

The SEC alleges that this service, which collected over $250 million in transaction fees, operated without the necessary brokerage registration.

Similarly, MetaMask Staking enabled users to participate in staking programs offered by Lido and Rocket Pool.

These programs, which the SEC considers securities, were offered and sold without proper registration, depriving investors of essential protections and information needed for informed decision-making.

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Technological Infrastructure And Revenue Generation

Consensys leveraged a variety of technological tools, including smart contracts and remote procedure call (RPC) nodes, to facilitate trades.

MetaMask Swaps also provided investors with the best quotes and allowed adjustments for slippage tolerance to ensure successful transactions.

Through these unregistered brokerage activities, Consensys generated significant revenue, collecting a standard fee of approximately 0.875% on most transactions, totaling $250 million in swap fees.

Investor Solicitations and Protections

The SEC’s lawsuit underscores the aggressive marketing efforts by Consensys, which promoted MetaMask Swaps as providing the best trading experience with deep liquidity.

However, by not registering as a broker or registering the securities offered through MetaMask Staking, Consensys allegedly deprived investors of crucial protections mandated by federal securities laws, including disclosures of financial conditions and conflicts of interest.

SEC’s Legal Actions

The SEC seeks a permanent injunction against Consensys, civil monetary penalties, and other relief to address these alleged violations.

In April, Consensys took legal action against the SEC after receiving a Wells notice, disputing potential efforts to categorize Ether and associated staking services as securities.

The company anticipated that the SEC would continue its investigation, stating:

"The SEC has been pursuing an anti-crypto agenda led by ad hoc enforcement action. 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,” the company had stated.

As the crypto industry continues to develop, stakeholders and market participants can gain further insights into these regulatory challenges at Benzinga’s Future of Digital Assets event on Nov. 19.

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