The Securities and Exchange Commission’s move to close its “Ethereum 2.0” investigation into Consensys raises questions: So, isn’t Ethereum a security?
Sources say that’s not entirely clear yet.
ConsenSys presentation On Tuesday, the SEC’s Division of Enforcement notified the blockchain and Web3 development company that it was ending its investigation into Ethereum 2.0 with a “major victory,” saying it means the SEC “will not bring charges alleging that ETH sales were securities transactions.” . .” This comes after the company sent a letter requesting it in June. The agency confirmed in May that approval of a spot Ether exchange-traded fund (ETF) meant it would end its investigation into ‘Ethereum 2.0.’
A June 18 letter from the SEC’s Chicago Regional Office to Consensys said the agency “has concluded its investigation into the matters noted above.”
“While we do not agree with this notice or with the statements of fact or legal conclusions set forth in the June 4 letter based on the information we have as of this date, we do not agree with your client, Consensys Software Inc., in connection with this investigation. and charges a fee for ,” the SEC said.
Consensys previously said SEC Enforcement Director Gurbir Grewal had authorized an investigation into “Ethereum 2.0” in March 2023 to investigate individuals and entities buying and selling Ethereum.
The question of whether Ether is a security or a commodity has been floating around for some time. SEC Chairman Gary Gensler did not explicitly state that Ethereum is a security. Meanwhile, Rostin Behnam, chairman of the Commodity Futures Trading Commission, the SEC’s sister agency, argued that ether is a commodity.
Teresa Goody Guillén, a partner at the BakerHostetler law firm and a former SEC litigation attorney, said in an email that the SEC’s move to end its investigation has led to a situation where ether is treated as a commodity.
“Just because the SEC has concluded its investigation into ether does not mean the commission has definitively concluded that ether is not a security,” she said. “However, this provides another data point that this committee has currently concluded not to take action to assert that Ethereum is a security.”
A former SEC enforcement lawyer who asked not to be named said the SEC may have decided that Ethereum is not a security or may have decided to stop investigating because the risk of litigation was too great for the agency to bear.
The SEC may decide to hedge its future statements about whether Ethereum is a security, a lawyer told The Block.
“It is possible that they will come out and say that Consensys’s issuance of eth is not a securities transaction, but eth could be issued as a security in some other form and that could make more money,” the former SEC attorney said. “That’s a solid statement,” he said. “That’s important to remember.” The thing is, I don’t think closing this case necessarily means we’ve decided there’s no security here. Maybe it’s just because you don’t want to risk filing a lawsuit. ”
next stage
Consensys said it still plans to do so. Pursue A lawsuit was filed against the SEC. The company sued the agency in April over its approach to regulating Ethereum, saying at the time that the SEC had “trained its eyes” on the company’s MetaMask software. In the complaint, the company also said it received a Wells notice, meaning formal notice that the agency plans to take enforcement action against them.
The company is seeking relief from MetaMask and the SEC to establish that Consensys does not act as a broker-dealer or engage in the sale of securities through its MetaMask Swaps and MetaMask Stake products. The SEC has until July 1 to respond to Consensys’ complaint.
The SEC’s Wells notice means the agency will likely still pursue Consensys, former SEC regional director Marc Fagel said in an interview.
“At this point, there is no basis to conclude that they are changing their stance on aggressive enforcement actions in the cryptocurrency industry,” Fagel said.
The agency’s decision to close an investigation does not set policy, Fagel said. However, the SEC added that it is unlikely that it will file lawsuits related to Ethereum in the future.
“This very strongly suggests that the SEC will not continue to pursue events related to ETH sales, whether by the issuer of the asset or the exchange facilitating the transaction,” Fagel said.
On what the end of Ethereum 2.0 means for the spot Ethereum ETF: Teresa Goody Guillén of BakerHostetler said she can provide assistance.
“The conclusion of the SEC’s investigation further supports the position that Ethereum is a commodity,” she said. “Each ETF’s registration statement is still being reviewed through a separate process, and any delays may result in Ether being treated as a security, especially given that each ETF’s registration statement has been amended to prevent staking of ETH received or managed by the ETF. It most likely has nothing to do with becoming.”
The SEC approved Form 19b-4s for eight spot Ethereum ETFs last month, but the products still require agency approval for registration forms as part of a two-step process. part ETF issuers received comments on Form S-1 from the SEC last week, with a deadline of Friday. the block.
Danny Park participated in the reporting.
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