The
SEC
has
filed
a
new
lawsuit
against
Consensys
for
alleged
violations
of
federal
securities
laws.
The
complaint
centers
on
Consensys’s
MetaMask
wallet
services,
specifically
the
Swaps
and
Staking
features,
which
the
SEC
claims
have
been
operating
as
unregistered
broker
services
since
October
2020
and
January
2023,
respectively.
The
lawsuit
follows
a
Wells
Notice
from
the
SEC
earlier
this
year,
which
led
Consensys
to
file
a
countersuit
for
“aggressive
and
unlawful”
overreach.
Ethereum
is
down
around
2%
on
the
day
but
has
not
seen
a
significant
sell-off
as
of
press
time.
The
SEC
asserts
that
Consensys
has
collected
over
$250
million
in
fees
from
these
activities
without
providing
necessary
investor
protections.
It
claims
MetaMask
Swaps
is
a
digital
platform
facilitating
transactions
in
crypto
asset
securities
for
retail
investors.
According
to
the
lawsuit,
it
offers
various
features,
including
identifying
the
best
exchange
rates,
routing
orders,
handling
customer
assets,
and
executing
trades
on
behalf
of
investors
while
charging
transaction-based
fees.
The
platform’s
use
of
smart
contracts
eliminates
the
need
for
investors
to
interact
directly
with
third-party
liquidity
providers.
Unregistered
securities
staking
Since
January
2023,
the
SEC
claims
MetaMask
Staking
has
been
involved
in
the
unregistered
offer
and
sale
of
securities
through
crypto
asset
staking
programs,
collecting
transaction-based
compensation
as
an
unregistered
broker.
The
SEC
has
identified
several
digital
assets
traded
on
the
MetaMask
Swaps
platform,
including
MATIC,
MANA,
CHZ,
SAND,
and
LUNA,
as
securities
offered
and
sold
as
investment
contracts,
leading
investors
to
expect
profits
based
on
the
issuers’
managerial
efforts.
These
assets
are
similar
to
those
mentioned
in
the
lawsuit
against
Coinbase
last
year.
The
SEC
also
claims
that
the
staking
programs
offered
by
Lido
and
Rocket
Pool
facilitated
through
MetaMask
Staking
are
investment
contracts
and,
therefore,
securities.
It
claims
these
were
offered
and
sold
without
the
necessary
registration
statements
filed
with
the
SEC.
The
SEC
affirms
that
Consensys
exercises
discretion
over
selecting
third-party
liquidity
providers
and
the
digital
assets
available
for
trading,
leveraging
its
market
knowledge
similarly
to
traditional
brokers.
The
company
has
also
implemented
a
“Token
Restriction
Policy”
to
restrict
certain
assets
based
on
potential
regulatory
issues.
The
SEC
seeks
to
permanently
forbid
Consensys
from
violating
securities
laws,
imposing
civil
monetary
penalties,
and
providing
other
necessary
relief
for
investors’
benefit.
The
agency
has
also
demanded
a
jury
trial
for
this
case.
SEC
drops
investigation
just
before
filing
lawsuit
Despite
the
lawsuit,
Consensys
recently
secured
a
significant
win
when
the
SEC
closed
its
investigation
into
Ethereum
2.0,
determining
that
ETH
sales
are
not
securities
transactions.
This
decision,
following
a
letter
from
Consensys
seeking
clarity
after
the
approval
of
ETH
ETFs,
aligns
with
the
Commodity
Futures
Trading
Commission’s
classification
of
ETH
as
a
commodity.
Consensys
announced
this
outcome
as
a
victory
for
Ethereum
developers
and
the
broader
industry,
emphasizing
that
the
SEC’s
decision
marked
a
pivotal
moment
by
providing
relief
from
potential
regulatory
actions
that
could
have
classified
ETH
as
a
security.
However,
the
company
continues
its
legal
battle
against
the
SEC,
arguing
that
the
agency’s
enforcement
actions
against
blockchain
developers
and
technology
providers
have
themselves
been
unlawful.
Consensys’s
lawsuit
seeks
to
clarify
that
offering
user
interface
software
like
MetaMask
Swaps
and
Staking
does
not
violate
securities
laws.
In
a
recent
interview,
Consensys’s
head
of
litigation,
Laura
Brookover,
stated
that
the
company
would
continue
to
sue
the
SEC
for
more
regulatory
clarity,
noting
that
the
battle
for
regulatory
clarity
is
far
from
over.
Brookover
emphasized
the
need
for
clear
guidelines
to
support
innovation
while
ensuring
compliance
with
existing
laws,
reflecting
a
broader
concern
within
the
crypto
community
about
the
need
for
balanced
regulation.
The
resolution
of
the
Ethereum
investigation
marks
a
critical
juncture,
and
the
new
suit
potentially
strengthens
Consensys’s
case
by
arguing
that
the
SEC’s
treatment
of
crypto
has
been
overly
aggressive.
Consensys’s
developing
legal
battle
with
the
SEC
highlights
the
tension
between
regulatory
oversight
and
technological
innovation,
a
dynamic
that
will
shape
the
future
of
blockchain
technology
and
its
applications.
The
outcome
of
this
case
will
be
closely
watched
by
industry
participants
and
regulators,
who
will
influence
technological
progress
in
the
blockchain
sector.
Mentioned
in
this
article
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Author: Liam ‘Akiba’ Wright
