SEC Has Considered ETH A Security Since 2023, Consensys Says In Unredacted Lawsuit

SEC Has Considered ETH A Security Since 2023, Consensys Says In Unredacted Lawsuit

Software giant Consensys filed a lawsuit against the Securities and Exchange Commission (SEC) last week and some portions of the lawsuit have been redacted.

However, now these redacted portions have been revealed and they show that the SEC has considered Ethereum (ETH) to be a security internally for over a year.

The complaint

According to Consensys’ complaint, an internal Formal Order had been issued by the Commission’s Director of the Division of Enforcement, Gurbir Grewal, on March 28th, 2023.

This announced an investigation into ‘Ethereum 2.0’, which authorized the regulator’s employees to subpoena and investigate parties involved in ETH’s buying and selling.

Consensys revealed that the Commission had approved the order on April 13th, 2023 and that it refers to Ethereum as a security explicitly.

This is because it had authorized the investigation of ‘certain securities, which included ETH, but no registration statement was applicable, or any exemption provided’.

It is undoubtedly a remarkable revelation that the ETH has been officially considered a security by the SEC for over a year.

The SEC stance

Gary Gensler, the chairman of the SEC, has been repeatedly asked about the status of Ethereum and he has refrained from making any explicit statement regarding the agency’s stance on it.

The SEC boss had been questioned as recently as last month regarding ETH’s status and he had refused to clarify their position.

The revelation did not do Ethereum any good, as it saw a decline of 5% after the details came to light, with the broader crypto market already down for the day.

It is because the crypto industry has been hoping for years that the American government might consider Ethereum to be a commodity.

It is the second-largest crypto token in the market after Bitcoin and serves as the foundation of the huge Ethereum ecosystem.

The conflict

Should Ethereum be categorized as a security, it would pave the way for its integration into the economy in a similar trajectory to Bitcoin.

In the past, Ethereum has been explicitly declared as a commodity by the head of the Commodity Futures Trading Commission (CFTC).

It seems that the SEC escalated its scrutiny of Ethereum after the merge event of the blockchain that took place in September 2022 when it transitioned to the proof-of-stake (PoS) consensus mechanism.

Thanks to this new energy-efficient network, users now have the option of staking ETH with the network to help it function and also accrue interest.

The SEC takes issue with the financial incentives it offers. In the year after the SEC issued its Formal Order, it steadily increased its offensive against entities involved with Ethereum.

An unnamed ‘state authority’ had also subpoenaed the Ethereum Foundation back in February. The Swiss non-profit has been established to support the Ethereum ecosystem.

A number of American crypto firms have also gotten subpoenaed due to their dealings with the Ethereum Foundation.

Consensys is the largest company in the US that is Ethereum-focused and it filed a preemptive against the SEC, claiming that the regulator does not have the right to regulate ETH.