A United States appeals court has backed a California federal judge’s decision to throw out a crypto-focused law firm’s pre-emptive lawsuit against the Securities and Exchange Commission — an attempt to force the regulator to clarify its classification of Ether.

Hodl Law’s November 2022 complaint against the regulator in a San Diego district court failed to show “a realistic danger” of it facing SEC enforcement action for breaking securities laws just because it used the Ethereum blockchain and its token Ether (ETH), a Ninth Circuit appeals court panel said on Aug. 22.

“Hodl Law’s complaint contains no allegations that the SEC has investigated, prosecuted, or threatened to investigate or prosecute the law firm’s use of Ether or Ethereum,” the three-judge panel wrote in an unpublished opinion.

The firm hoped the suit would force the SEC to clarify its position on if it considers ETH a security after it launched a slate of enforcement actions against crypto firms, implicating dozens of cryptocurrencies under securities laws. 

“If the SEC determines that transactions involving Ether or the Ethereum network violate the Securities Act, Hodl Law would already be in violation of the law because it currently engages in such transactions as part of its law practice,” the panel wrote.

The judges backed the California court’s July 2023 dismissal of the case, finding that Hodl Law failed to find proof that the SEC had engaged in “final agency action” — meaning the regulator had decided that ETH is a security.

Highlighted excerpt of the panel’s opinion holding that the SEC has not alleged ETH is a security in any of its enforcement actions. Source: PACER

The panel added the law firm hadn’t identified “any authority that requires the SEC to engage in specific rulemaking or respond to private parties’ requests for guidance” on ETH’s legal classification.

Hodl Law’s senior managing partner Fred Rispoli wrote in an Aug. 22 X post that the court’s decision was “disappointing but expected.”

“All we wanted was for the court to give us a chance to argue [ETH] is not a federal security,” he said. 

Source: Fred Rispoli

The SEC has not determined whether ETH and assets on the Ethereum blockchain are securities, even with it approving spot ETH exchange-traded funds (ETFs) in July.

The Ninth Circuit panel said it’s possible the SEC “will never decide that Ether or Ethereum is a ‘security’ under the Securities Act.”

Rispoli hit back at the panel’s holding, saying, “This is not how the rule of law is supposed to operate in the United States of America.”

“We have some more avenues to attempt to force the SEC to provide an answer to us,” Rispoli said. “We are not giving up.”

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