Ethereum
Consensys Ethereum Lawsuit Won’t Deter SEC, Former Regulator Says
A preventive trial filed in Texas federal court seeks to definitively determine the regulatory status of Ethereum. But the move by blockchain software company Consensys in its home state may be far from the final legal showdown over crypto’s second coin, as the Securities and Exchange Commission (SEC) has a national scope.
“The SEC can bring suit anywhere in the country,” said Christopher Gerold, a partner at Lowenstein Sandler LLP. Decrypt. “They may as well file suit today and allege the sale of unregistered securities in a jurisdiction they deem favorable: California, New York, [or Washington] DC”
In his complaintthe maker of MetaMask claimed that the Securities and Exchange Commission (SEC) had Ethereum seen internally as warranty for over a year. (Disclosure: Consensys is one of 22 investors in Decrypt.) Among other decisions related to MetaMask features, Consensys is seeking a judicial declaration that Ethereum is not a security.
Ethereum co-founder and Consensys CEO Joe Lubin said Thursday that the companies’ lawsuit is aimed at “get clarification from US courts.” But the legal battle, while taking place in Texas, probably won’t bring clarity on its own, according to Gerold, who previously served as head of the New Jersey Bureau of Securities.
“You have many judges [in Texas] who are concerned about the expansion of federal agencies and the role they play,” Gerold said. “If you are anti-regulation […]This is where you present your case.
Consensys may have made a strategic choice in filing its complaint in the U.S. District Court for the Northern District of Texas, where “shopping judge» proved controversial. But that doesn’t stop the SEC from choosing its own favorable legal terrain if it decides to pursue a separate lawsuit, Gerold explained.
If the SEC wanted to publicly discover that Ethereum was a security, it did not have to do so through the Consensys lawsuit, he continued. And depending on how the higher courts decide in the appeals of these cases, Ethereum could be considered a security in one part of the United States but not the other.
“Something might be legal in New Jersey and illegal in Texas,” Gerold said, emphasizing that federal circuit courts are not bound by the decisions of other federal circuit courts.
A patchwork of jurisprudence could consolidate if the Supreme Court then decides not to address the question of whether Ethereum is a security. Of course, Congress could intervene at any time with new laws that will ultimately determine how digital assets are treated, Gerold said.
The SEC has not filed any charges related to the Ethereum-focused investigation that Consensys says is ongoing. And Gerold expects the agency will first seek to dismiss the case without telegraphing its internal thoughts on Ethereum’s legal status.
An SEC lawsuit could then ensue, which would rely on a Wells notice issued to Consensys, as is usually the case, Gerold said. A Wells Notice from the SEC generally precedes formal charges. It may still be years before the regulatory issue surrounding Ethereum is fully settled, coming to a head in several different courtrooms along the way.
“There are different paths [that this] could go.” said Gérold. “But this idea according to which the Consensys trial will answer the question [of] Whether Ethereum is a security or not – and this is the only forum that has this capability at present – is a fallacy.
Edited by Ryan Ozawa.