Author: jk, Daily Planet
On Friday, June 28, local time in the United States, the U.S. Securities and Exchange Commission (SEC) sued Consensys in the Brooklyn Federal Court in New York on Friday, accusing the company of "engaging in securities offerings and sales" and "acting as an unregistered broker" through its digital asset wallet called MetaMask.
SEC’s Scope
“Consensys violated the federal securities laws by failing to register as a broker-dealer and by failing to register the offers and sales of certain securities,” the complaint states. “Consensys collected more than $250 million in fees through its conduct as an unregistered broker-dealer.”
According to The Block, the SEC stated that Consensys sold thousands of unregistered securities through staking program providers Lido and Rocket Pool, which issued liquid staking tokens called stETH and rETH after receiving the staking assets. Investors provided ETH to Lido and Rocket Pool, which were then pooled and staked on the blockchain to obtain returns that investors might not be able to obtain individually.
The SEC said: "Upon receipt of ETH from investors, Lido and Rocket Pool would issue new crypto assets to investors - stETH or rETH, respectively, representing investors' pro rata interests in the staking pool and its returns." Lido and Rocket Pool were sold and offered as investment contracts and are therefore securities, the agency added.
In April, Consensys attempted to preempt the SEC’s action with its own lawsuit in Texas, alleging the regulator overstepped its authority. So far this year, the SEC has issued Wells notices, filed lawsuits, or reached settlements with a number of crypto companies focused on Ethereum and decentralized finance, including ShapeShift, TradeStation, and Uniswap, while the SEC is also investigating the Ethereum Foundation.
Consensys responds
Consensys claims that they had: “fully anticipated the SEC’s assertion that our MetaMask software interface must register as a securities broker-dealer. The SEC has been pursuing an anti-crypto agenda through interim enforcement actions. This is just the latest example of its regulatory overreach — a transparent attempt to redefine pre-existing legal standards and expand the SEC’s jurisdiction through litigation. We are confident in our position that the SEC has no authority to regulate software interfaces like MetaMask. We will continue to aggressively pursue our case in Texas because the decision on these issues is not only about our company, but also about the future success of Web3.”
Just 10 days ago, Consensys announced victory in its battle with the SEC. The company wrote in a statement on June 18: "The SEC Enforcement Division has informed us that it will end its investigation into Ethereum 2.0 and will not take enforcement action against Consensys." Odaily published a related article this week, "The SEC's investigation into ETF 2.0 has just ended, but the lawyers are arguing," summarizing the views of lawyers from all sides.
View
The SEC’s approach on this matter is now clear. It is very likely that the approval of the Ethereum ETF came from political pressure, as most people say, but the SEC does have the intention and determination to follow up on Ethereum and other public chains to prove that they are securities and establish the SEC’s regulatory jurisdiction over them.
Therefore, the SEC chose to send a cease-and-desist letter to Consensys regarding its investigation into Ethereum itself (the letter also contained many ambiguous sentences, such as stating that the investigation was stopped but that it did not mean that it agreed with Consensys’s views in the case), suspending the matter, reserving the right to continue investigating whether other public chain tokens are securities in the future (because other public chain tokens are not as decentralized as Ethereum), and chose to meet Consensys in court over the issue of staking.
Although there is no definitive answer as to whether staking is a security; from the Howey principle, does the income come from "other people's efforts" or pure market speculation, or is it an asset automatically generated by the on-chain contract? In this way, the SEC actually has two ways to continue to follow up on other tokens legally, that is, to propose that the token itself is a security or to propose that the token pledge is a security.