New court docs show the SEC and Gary Gensler viewed Ether as a security for at least a year.

Recent findings suggest that the United States Securities and Exchange Commission (SEC), along with its Chair Gary Gensler, may have operated under the belief that Ether (ETH) qualified as a security for a substantial duration, spanning at least a year. This revelation emerged from discoveries made on Monday.

According to allegations outlined in a complaint filed by Consensys Software Inc., the SEC’s Director of Enforcement, Gurbir Grewal, initiated an investigation into “Ethereum 2.0” on March 28, 2023. The investigation purportedly focused on potential offers and sales of certain securities, including Ether, dating back to at least 2018. It is alleged that these transactions lacked the necessary registration statements and exemptions, raising concerns about their compliance with securities regulations.

Gensler and the SEC thought Ethereum (ETH) was a security.

The recent filing appears to contradict the previous stance of the federal agency regarding Ethereum (ETH). This discrepancy is particularly notable considering that the Securities and Exchange Commission (SEC) had approved Ethereum Futures Exchange-Traded Funds (ETFs) as recently as October 2023. This approval seemed to suggest that the SEC had, at that point, accepted Ethereum as a commodity rather than a security. The apparent inconsistency between the SEC’s approval of ETH Futures ETFs and the investigation into Ethereum 2.0 raises questions about the agency’s regulatory approach and highlights the complexity of classifying digital assets within the current regulatory framework.

Gensler, who has previously refrained from commenting on Ethereum’s classification, has been subject to ongoing scrutiny due to the Securities and Exchange Commission’s (SEC) enforcement-focused regulatory approach.

Of notable concern is an incident from June 2028 when the SEC’s then-Director of Corporation Finance, Bill Hinman, delivered a widely-discussed speech asserting that Ethereum was not a security.

The recent filing indicates that the SEC has communicated with Consensys regarding an investigation into whether Consensys’ current sales of Ethereum (ETH) constitute securities transactions. These transactions involve the sale of ETH from Consensys’ own reserves as part of its regular treasury operations. The SEC staff has reportedly requested Consensys to provide a “proffer” outlining why the company believes its ETH sales do not fall under the category of securities transactions.

Following the investigation into Ethereum 2.0, is the SEC poised to take any action?

Before Monday’s court filings emerged, Consensys, a blockchain development company, lodged formal litigation against the commission for its efforts to classify ETH as a security.

In a compelling blog post penned by Consensys founder Joe Lubin, the Ethereum luminary vehemently argued against what he perceives as the Securities and Exchange Commission’s (SEC) overreach in attempting to regulate Ethereum (ETH) as a security. Lubin asserted that the SEC should not have the authority to arbitrarily expand its jurisdiction to encompass the regulation of the future of the internet. He criticized the federal agency’s approach as reckless, contending that it is causing chaos among developers, market participants, institutions, and nations that are involved in or are overseeing critical systems built on the Ethereum platform.

Recent reports have surfaced indicating that several companies affiliated with the Ethereum Foundation have received subpoenas requesting information related to the Swiss non-profit organization. Additionally, in March, a comment posted in the foundation’s GitHub repository revealed that the organization had been contacted by an undisclosed “state authority.”

The situation escalated further when Consensys received a Wells notice on April 10, signaling the likelihood of impending legal action by the SEC against the blockchain development company. As tensions mount and regulatory scrutiny intensifies, it appears that Consensys may soon find itself embroiled in legal proceedings with the SEC.

READ MORE ABOUT: Gary Gensler criticizes crypto platforms for avoiding SEC oversight.


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