SEC and Gensler’s Shift on Ether: From Security Concerns to Legal Battles

SEC Gary Gensler Ether
Newly revealed court documents indicate that the United States Securities and Exchange Commission (SEC), along with its Chair Gary Gensler, held the belief that Ether (ETH) was a security for a period of at least one year.

Consensys Software Inc. lodged a complaint, disclosing that Gurbir Grewal, the SEC Director of Enforcement, initiated an investigation into “Ethereum 2.0” on March 28, 2023.

This investigation focused on potential unregistered offers and sales, dating back to at least 2018, involving certain securities, including ETH. This indicates a departure from the SEC’s earlier stance, which included approving ETH Future ETFs in October 2023.

Gensler, who had refrained from commenting on ETH’s classification, has been under scrutiny for the agency’s regulatory approach, often criticized as regulation-by-enforcement.

A notable incident occurred in June 2028, when the SEC’s then-Director of Corporation Finance, Bill Hinman, delivered a speech asserting that ETH was not a security.

The complaint revealed that Consensys is under investigation regarding its ETH transactions, with the SEC examining whether these transactions constitute securities transactions. The SEC requested a statement from Consensys justifying why its ETH sales should not be considered securities transactions.

Before the court filings on Monday, Consensys had already taken legal action against the SEC’s attempt to regulate ETH as a security.

In a blog post, Consensys founder Joe Lubin argued against the SEC’s expanded jurisdiction and criticized its disruptive impact on developers, market participants, institutions, and nations relying on Ethereum.

Recent reports indicated that several companies associated with the Ethereum Foundation received subpoenas for information from the Swiss non-profit. Additionally, in March, a comment on the foundation’s GitHub repository indicated contact with an unnamed state authority.

With the receipt of a Wells notice on April 10, it appears inevitable that the SEC will pursue legal action against Consensys.

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