FOX Business’ Charlie Gasparino explains the political and market implications of ConsenSys, the backer of the Ethereum blockchain, suing the SEC over its security status.
Exclusive: For at least a year, the Securities and Exchange Commission and its chairman, Gary Gensler, have believed that Ethereum, the second-largest cryptocurrency, is an unregistered securities transaction that does not comply with current federal regulations. According to an investigation by FOX Business.
The disclosure came after Ethereum software company ConsenSys filed an unredacted complaint with authorities. The company filed a redacted version of its lawsuit in Texas federal court last Thursday in response to a so-called Wells notice detailing the SEC’s plan to sue the company for failing to comply with federal securities laws.
No new documents filed Monday morning have yet been reported. These provide insight into the timeline behind the SEC’s thinking regarding Ethereum’s status as a security, and the regulatory status of the cryptocurrency held by millions of investors. Shedding light on perhaps the biggest question facing the digital asset industry. .
SEC Chairman Gary Gensler attends a meeting of the U.S. Treasury Department’s Financial Stability Oversight Council in Washington, DC on July 28, 2023. (Kevin Dietch/Getty Images)
An SEC spokesperson had no immediate comment.
Cryptocurrency industry fights back against government crackdown
Last week, ConsenSys created a stir in the crypto world by filing a lawsuit against the SEC, alleging an illegal power grab by attempting to classify Ethereum as a security.
According to new filings, on March 28, 2023, Gurbir Grewal, head of the SEC’s Division of Enforcement, approved a formal investigation order regarding Ethereum’s status as a security, and that enforcement staff will investigate individuals and entities involved with Ethereum. authorized to investigate and subpoena. Buying and selling Ethereum tokens.
People with direct knowledge of the matter told FOX Business that recipients of the subpoenas were instructed by the SEC to keep the investigation strictly confidential if they wanted further details about it. Those who received subpoenas compared their interactions with the SEC to signing non-disclosure agreements.
ConsenSys, founded by Joe Rubin, one of the founders of the Ethereum blockchain, was one of the few Ethereum-related companies to receive a subpoena from the SEC around this time, according to people familiar with the matter.
Coinbase criticizes traditional payment methods over $15M NBA ad spend
According to the filing, the “Ethereum 2.0” investigation (so-called “Ethereum 2.0”) involved “offerings and potential sales of certain securities, including but not limited to ETH” that had occurred since at least 2018. This is based on the SEC’s belief that The SEC has determined that Ethereum is a security, which would contradict previous SEC guidance under Chairman Jay Clayton. In June of the same year, Bill Hinman, then Commissioner of the Treasury Department, stated in a speech that the SEC’s position was that Ethereum, along with Bitcoin, was not a security.
Then-Securities and Exchange Commission Chairman Jay Clayton speaks at the New York Economic Club Luncheon on September 9, 2019 in New York City. (Shannon Stapleton/Reuters Photo)
Hinman was not immediately available for comment.
Hinman said that the crypto industry understood that both Ethereum and Bitcoin were “well decentralized” and would not be regulated by the SEC, leading to Hinman’s talk at the Yahoo Finance All Market Summit. As a result, the price of Ethereum rose by 10%. A year later, the Commodity Futures Trading Commission declared Ether a commodity under its jurisdiction.
Bill Hinman is a former director of corporate finance at the Securities and Exchange Commission. (U.S. Securities and Exchange Commission)
ConsenSys said in its lawsuit that it built its business on the back of this regulatory alignment.
Sen.Warren Challenger files SEC lawsuit against cryptocurrency industry’s Coinbase
A five-member committee approved the executive branch’s Ethereum 2.0 investigation on April 13, 2023, just five days before Gensler’s appearance before the House Financial Services Committee, according to new filings. It has been shown that, He declined to answer repeated questions from Commissioner Patrick McHenry, RN.C., about whether the SEC believes Ethereum is a security.
Congressman Patrick McHenry speaks during a hearing on June 23, 2022 in Washington, DC. (Eric Lee/Bloomberg/Getty Images)
Even before his testimony, Gensler’s reluctance to give final answers about Ethereum’s regulatory status raised red flags in the crypto industry. Many people are aware that Ethereum was integrated into a so-called “proof of stake” consensus mechanism in September 2022, meaning that validators can “stake” their Ethereum holdings to secure the network and generate new tokens. We speculated that by creating virtual currencies, they became more like securities than before. The unique “proof-of-work” consensus mechanism on which Bitcoin operates.
Gensler made comments alluding to this concept shortly after the Ethereum merger, saying the nature of proof-of-stake tokens could lead to the so-called Howie test used by courts to determine whether an asset qualifies as an investment contract. He said that it could cause. Security.
ConsenSys’ lawsuit reveals that the SEC has filed numerous document requests over the past year seeking more detailed information about the company’s role in the proof-of-stake merger and its acquisition, holdings, and sales of Ethereum. Became. It also indicates that the SEC may believe that pre-merger sales of Ethereum were securities as early as 2018.
CLICK HERE TO GET FOX BUSINESS ON THE GO
The investigation has further escalated in recent weeks, with ConsenSys receiving a fourth document subpoena in March and a notice from Wells on April 10, stating that the agency The company announced its intention to take enforcement action against the company on suspicion of acting as a broker-dealer. Also includes Ethereum via MetaMask wallet.
The complaint mirrors those filed against exchanges Coinbase and Kraken, as well as cross-border payments company Ripple.
ConsenSys expects the court to finally resolve the dispute over Ethereum’s regulatory status.
