The U.S. Securities and Exchange Commission (SEC) recently achieved another victory in the ongoing crypto regulatory landscape. A federal appeals court has upheld a California judge’s decision to dismiss a lawsuit filed by Hodl Law, a law firm specializing in cryptocurrency-related cases.
The firm sought clarity on whether Ether (ETH) and the Ethereum network are considered securities under U.S. law.
Court backs SEC in dismissal of Hodl law’s suit
Hodl Law’s lawsuit, filed in November 2022, aimed to compel the SEC to state whether Ether and the Ethereum network fall under securities regulations. The law firm argued that the SEC’s ambiguity on Ethereum’s status exposed them to potential enforcement actions, creating uncertainty for their operations.
However, following a July 2023 dismissal by a lower court, the federal appeals court rejected this argument. The judges ruled that Hodl Law had failed to demonstrate any “realistic danger” of facing SEC action merely for utilizing Ethereum.
The court’s ruling emphasized the SEC’s lack of investigation or prosecution regarding Hodl Law’s use of Ether or the Ethereum network. The panel of judges noted, “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.” This reasoning was central to the court’s decision to dismiss the case.
There is no evidence of the SEC decision on ether
Another critical point in the court’s ruling was the absence of evidence that the SEC had made any definitive decision about whether Ether is a security. Hodl Law’s lawsuit was, in essence, an attempt to force the SEC to take a clear position on the matter. The court, however, saw no grounds for such a demand, especially given the absence of any formal SEC action against the firm.
The judges further stated that if the SEC were to determine that transactions involving Ether or the Ethereum network violated the Securities Act, Hodl Law would already be in violation due to their ongoing use of Ether in their legal practice. This assertion underscores the speculative nature of Hodl Law’s concerns, which the court deemed insufficient to warrant legal action.
Hodl Law’s response and plans
Following the court’s decision, Fred Rispoli, Hodl Law’s senior managing partner, expressed disappointment but acknowledged the ruling. He emphasized that the court upheld the district court’s decision, finding that Hodl Law lacked standing to sue the SEC for clarity on Ether’s status as a federal security. Rispoli also reiterated that the SEC has not formally determined whether Ether and the Ethereum network are securities despite the approval of Ethereum-based ETFs.
Rispoli took to social media to voice his frustration, stating that the SEC’s lack of clarity does not align with how the rule of law should operate in the United States. Despite this setback, Rispoli indicated that Hodl Law is not ready to give up and plans to continue pursuing an answer from the SEC, although the path forward has become more challenging.
The court’s decision marks another significant development in the ongoing debate over how cryptocurrencies should be regulated in the United States. As the SEC grapples with classifying digital assets, this case highlights the complexities and uncertainties in the crypto space.
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