SEC and Gensler: Ether Considered Security for a Year

Consensys, an Ethereum software firm, has filed a lawsuit against the United States Securities and Exchange Commission (SEC). This legal action has brought to light new information concerning the SEC’s stance on Ether (ETH). According to a report by Fox Business producer Eleanor Terret, the SEC and its chairman Gary Gensler believed that Ether was a security for at least a period of time. They claimed that it was an “unregistered security trading out of compliance with current federal regulations.”

Consensys filed an unredacted complaint against the SEC in a Texas federal court on April 25 in response to a Wells notice from the securities regulator. This notice detailed the SEC’s intentions to sue the firm for failing to comply with federal securities laws. The recent filing revealed that on March 28, 2023, the head of the SEC’s Division of Enforcement, Gurbir Grewal, approved a formal order of investigation into Ether’s status as a security. This investigation, referred to as “Ethereum 2.0,” authorized enforcement staff to investigate and subpoena individuals and entities involved in the buying and selling of Ether.

Anonymous sources with direct knowledge of the matter stated that the SEC instructed subpoena recipients to keep the investigation confidential. The “Ethereum 2.0” investigation was initiated based on the SEC’s belief that unregistered offerings and sales of Ether had taken place since 2018.

If Gensler’s SEC determines that Ether is a security, it would contradict previous SEC guidance under Chairman Jay Clayton. In June 2018, then-Director of Corporation Finance Bill Hinman stated in a speech that the SEC did not consider Ether, along with Bitcoin, to be a security.

The recent filings also revealed that the five-member Commission approved the Division of Enforcement’s “Ethereum 2.0” investigation on April 13, 2023. This approval occurred just five days before Gensler appeared before the House Financial Services Committee, where he refused to answer questions regarding the SEC’s view on Ether being a security.

These developments come at a time when applicants and firms involved in a possible spot Ether exchange-traded fund (ETF) in the U.S. anticipate a decision from the SEC in May. Bloomberg ETF analyst Eric Balchunas believes that Gensler’s position on Ether could impact the decision process, as he has not provided clear guidance on whether Ether was considered a security in the past.

Consensys’ lawsuit against the SEC has unveiled more information about the SEC’s perspective on Ether, indicating that there may be a discrepancy between the current chairman’s stance and previous SEC guidance. These revelations could have implications for future regulatory decisions concerning Ether and Ethereum-related products.