While Bitcoin has been recognized as a commodity, the same cannot be said for Ethereum’s status, which has been more ambiguous due to its initial coin offering (ICO) in 2014.
However, a new report suggests that the Securities and Exchange Commission (SEC) and its chairman, Gary Gensler, seem to have believed that Ethereum is an unregistered security for a long period of time.
SEC and Gensler’s Beliefs Exposed
According to the latest FOX report, court documents filed by Consensys on April 29 stated that the SEC and Gensler seem to have believed for at least a year that Ether was an unregistered security and has been trading in violation of current federal regulations.
The latest development follows Consensys filing an unredacted complaint against the agency in a Texas federal court in response to receiving a “Wells notice,” which outlined the SEC’s plans to sue the Ethereum software firm for alleged violations of federal securities laws.
The filing indicated that the SEC began an investigation dubbed “Ethereum 2.0” due to its belief that potential sales of certain securities, including Ether, had occurred since at least 2018. If the asset were deemed a security by the Gensler-led SEC, it would contradict previous guidance given by former Chairman Jay Clayton.
In a now-infamous 2018 speech, the then-director of Corporation Finance Bill Hinman said that Ethereum, like Bitcoin, was not a security, which led the industry to believe the SEC would not regulate the top two cryptocurrencies, citing “sufficient decentralization.”
However, a year later, the Commodity Futures Trading Commission (CFTC) classified Ether as a commodity. Consensys, in its lawsuit, emphasized that it built its business under this regulatory clarity.
New filings reveal that the five-member commission approved the “Ethereum 2.0” investigation on April 13, 2023, just five days before Gensler appeared before the House Financial Services Committee, where he avoided questions from committee Chairman Patrick McHenry regarding Ethereum’s regulatory status.
The launch of the investigation was marked by unusual secrecy. The FOX report even claimed that the subpoena recipients were instructed to sign confidentiality agreements to receive information about the probes’ progress. It’s unclear why the SEC maintained such secrecy.
Consensys’ Lawsuit Against SEC
Consensys filed a lawsuit against the SEC last week regarding its handling of Ethereum regulation. The company claimed that the regulatory watchdog has classified Ether as a security and has targeted the firm’s Metamask software.
The complaint also mentioned that the SEC staff sent Consensys a Wells notice earlier this month, indicating the agency’s intention to take enforcement action. Consensys has maintained that it has cooperated with the SEC and even provided over 88,000 pages of documents in response to multiple subpoenas over the past year.
Consensys also argued that any investigation stemming from Ether being deemed a security would violate the company’s Fifth Amendment rights and the Administrative Procedures Act.
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