Ethereum & Consensys vs SEC – An ‘unlawful power grab’ or a ‘cover-up?’

  • Consensys sued the SEC in Texas over Ether’s classification
  • Org has challenged the SEC’s allegations, while advocating for fairness and clarity

With the ongoing debate about Ethereum’s potential classification as a security becoming exhausting, Consensys, a prominent blockchain software company, made headlines recently by taking a bold step. They initiated legal action against the US Securities and Exchange Commission (SEC) and its five commissioners in their home state of Texas.

Amidst the prolonged controversy over whether Ethereum‘s ETH should be considered a security, Consensys, a leading blockchain software company, made headlines recently by taking a decisive move. They filed a lawsuit against the US Securities and Exchange Commission (SEC) and its five commissioners.

Laura Brookover’s insights

In response to the same topic, Laura Brookover, who holds the position of Senior Counsel and Head of Litigation and Investigations at ConsenSys, made this statement during a recent episode of “Unchained.”

“We weren’t planning on filing a lawsuit against the SEC, but unexpected circumstances have led us to this point. We have initiated legal action against the SEC in our base location, Texas, with the aim of protecting Ether and the Ethereum network from what we believe is an unlawful seizure of power by Chair Gensler.”

She added, 

“These significant issues that we face in our industry are long overdue for recognition. It’s high time they came to light.”

The executive shares that the Securities and Exchange Commission (SEC) is not limiting its investigation to ConsenSys’s Metamask product alone. Instead, they are expanding their scrutiny to include ConsenSys’s finance team. This expansion is evident in the SEC’s line of questioning, which focuses on the sales of Ether and Ethereum developers within the organization.

She went on to say, 

If Chairman Gensler successfully labels Ether as a security in the US, the consequences could be disastrous.

Consensys’s defense mechanism 

When emphasizing the significant distinctions between proof of work and proof of stake systems, Consensys has repeatedly disputed the Securities and Exchange Commission’s (SEC) proposed view that staking transforms Ether into a security. To clarify, Brookover argued against the SEC’s distinction between the Bitcoin and Ethereum networks, asserting that:

“There’s no justification for distinguishing between them in this case, it’s purely random. Therefore, I believe we can use this as evidence to argue that the Securities and Exchange Commission lacks a valid reason for their actions.”

That’s not how everyone feels though. For instance, according to crypto-lawyer Bill Morgan, 

Ethereum & Consensys vs SEC – An ‘unlawful power grab’ or a ‘cover-up?’

Contrary to some views, Steven Nerayoff, a previous advisor for Ethereum, argues that Ethereum has behaved like a centralized organization since its Initial Coin Offering (ICO). Therefore, he proposes that Ethereum should be categorized as a security.

“This move is to distract people from the truth and just another cover-up.”

The Wells Notice 

During the conversation about the SEC’s Wells notice accusing Consensys of functioning as an unregistered securities broker, Brookover brought up the topic of Consensys’ Metamask swaps and staking functions. In response to this charge, she maintained that Metamask functions as a means of communication for liquid staking protocols instead of being involved in the distribution of securities.

In other words, according to Brookover, a favorable decision in the lawsuit could bring welcomed clarity to the regulatory confusion surrounding cryptocurrencies.

As a researcher involved in this project, I can express it this way: “Should our efforts bear fruit, we will gain valuable insights into the application of these concepts to digital assets. Such clarification would significantly benefit the entire industry.”

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2024-04-28 00:07