A blockchain company known for its Ethereum-based solutions has announced a workforce reduction, citing regulatory pressure from the U.S. Securities and Exchange Commission (SEC) as a direct cause.
On Tuesday, the New York-based firm revealed that it would lay off 20% of its staff, a move after a series of legal confrontations with the SEC over alleged regulatory breaches.
A message from our CEO @ethereumjoseph on the tough decision that Consensys has made today to streamline operations and position ourselves for sustainable growth and innovation while enduring a challenging regulatory and macroeconomic landscape.This transition impacts 20% of… https://t.co/DTY6wDL3QJ
— Consensys (@Consensys) October 29, 2024
Founder and CEO Joe Lubin described the SEC’s actions as an “abuse of power” and attributed the downsizing to what he views as aggressive enforcement tactics aimed at disrupting the company’s business model.
SEC Claims Violations in MetaMask Features
The current SEC lawsuit, filed on June 28, targets key services within Consensys’ portfolio, notably focusing on features of the company’s widely used MetaMask software.
According to the SEC’s claims, MetaMask’s Swaps feature, which allows users to exchange cryptocurrencies within the application, functions as an unregistered broker by facilitating securities transactions.
Additionally, the agency contends that Consensys’ MetaMask Staking services represent the sale of unregistered securities and alleges that the company is operating outside of legal compliance.
Consensys, however, has defended its business practices, asserting that users retain control over their MetaMask software, thereby diminishing the company’s role in these transactions.
The firm argues that its software functions as a decentralized tool, with users executing transactions independently of the company’s direct involvement.
Despite these assertions, the SEC has maintained that Consensys’ technology suite is essential to these transactions, suggesting that the company’s active role and profitability point to intentional legal violations.
Legal Developments and Previous Layoffs
The legal struggle has been ongoing since early 2023, with Consensys attempting a preemptive lawsuit against the SEC following a Wells Notice—an official notification signaling potential enforcement action.
On September 19, a federal judge dismissed Lubin’s appeal for a declaratory judgment to exempt ETH transactions from being categorized as securities, a ruling that would have shielded Consensys and other firms reliant on the Ethereum network from similar regulatory challenges.
With Lubin’s legal requests denied, the company now faces the next hearing, scheduled for November 20, in the U.S. District Court for the Eastern District of New York. The court will determine the framework for evidence collection, prolonging a process that could lead to further business adjustments.
Consensys’ Workforce Reductions: A History
The current downsizing follows Consensys’ January 2023 layoff of 100 employees from a 900-person workforce, a move attributed to both market challenges and regulatory uncertainties.
However, prior to that, in 2018, the company implemented another massive downsizing exercise that saw it dismiss about 600 of its workers due to organizational restructuring caused by a shift in market forces.
The latest cut points to the continuous effect of regulation measures, proving that legal actions complicate business operations.
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