New court filings indicate that the U.S. Securities and Exchange Commission (SEC) along with its chairman Gary Gensler, held the view that Ethereum, the world’s second-largest cryptocurrency, was an unregistered security for at least a year. This revelation emerged from a legal complaint, initially submitted as redacted, by Ethereum software company Consensys in a Texas federal court in response to a Wells notice. This notice detailed the SEC’s intention to prosecute the company for failing to adhere to federal securities laws.
The allegations in these newly released documents have not yet been publicly reported. These court filings shed light on the SEC’s standpoint on Ethereum’s status as a security within a specific timeline and also hone in on a key industry question – the legal status of this widely adopted crypto asset.
Creating a stir in the crypto-industry, Consensys recently sued the SEC, alleging that the agency’s attempts to classify Ethereum as a security represented an illegal bid for increased authority. The lawsuit revealed that in March 2023, Gurbir Grewal, the leading official of the SEC’s Division of Enforcement, approved an official investigation into Ethereum’s status as a security. The order authorized SEC personnel to probe and issue subpoenas to those involved in Ethereum transactions.
Consensys, a company founded by Ethereum blockchain pioneer Joe Lubin, along with a small group of other Ethereum-affiliated firms, were served subpoenas by the SEC during this time, sources reveal.
According to these court filings, the SEC began its ‘Ethereum 2.0’ probe based on suspicions of securities trading involving Ethereum and other assets from as early as 2018. This development, if true, represents a shift from the previous SEC guidance under Chairman Jay Clayton. The SEC had previously stated that Ethereum and Bitcoin were not securities, as highlighted by then-Director of Corporation Finance, Bill Hinman, in a 2018 speech.
Consensys believes that it built its business with this legal consensus in mind. Fresh court filings reveal that the SEC’s five-member commission greenlighted the ‘Ethereum 2.0’ probe in April 2023. The investigation is regarded by securities lawyers as unusually secretive.