The lawsuit filed by ConsenSys against the SEC has unveiled additional details about the regulator’s position on Ethereum. Legal experts suggest this could lead to a protracted legal battle.
New Revelations
According to an investigation by Fox Business journalist Eleanor Terrett, the agency and its chairman, Gary Gensler, regarded the second-largest cryptocurrency by market capitalization as a security.
Based on court documents filed by ConsenSys, Gensler considered Ethereum an “unregistered asset not in compliance with existing federal regulations” for “at least a year.”
The memo also states that on March 28, 2023, SEC’s head of enforcement, Gurbir Grewal, approved an official order to investigate the asset’s status as a security.
The procedure, known as Ethereum 2.0, authorized agency staff to conduct investigative activities and subpoena individuals and entities involved in cryptocurrency trading, Terrett claims.
According to Terrett’s anonymous sources, the SEC instructed subpoena recipients to keep the investigation confidential in exchange for details about personal cases.
Terrett is convinced that the launch of Ethereum 2.0 was motivated by the assumption that ether is classified as a security and has thus been traded illegally since 2018. On April 13, 2023, the investigation’s findings were approved by five Commission chairmen.
This occurred just days before Gensler’s appearance before the U.S. House Financial Services Committee, where he refused to answer questions regarding Ethereum’s classification.
A Lengthy Battle
Lawyers from TD Cowen, led by Jaret Seiberg, wrote that the SEC and ConsenSys litigation could drag on for a long time. This would also negatively impact the approval of spot Ethereum ETFs.
“The court case will last several years. We still believe the Commission is unlikely to approve exchange-traded funds based on the asset before 2025,” states the report reviewed by The Block.
ConsenSys’s choice of the Northern District of Texas court, which shows “the least deference to regulatory bodies,” also “does not guarantee swift results,” the lawyers believe.
According to TD Cowen representatives, Gensler “would be fine” if the court recognizes Ethereum as a security or a commodity. Furthermore, the SEC chairman aims to establish legal precedents for the digital asset market before Congress enacts legislation on its structure, experts assert.
TD Cowen views the case as “positive” because ConsenSys raises key issues that need resolution. In 2018, former regulator William Hinman stated that ether is not a security, but Gensler’s refusal to comment on this matter has created prolonged uncertainty.
On April 23, the SEC postponed its decision on the Ethereum fund from Franklin Templeton, with a deadline set for June 11. Previously, the regulator extended the review period for a similar application from BlackRock.
Investment bank Standard Chartered has revised its positive forecast regarding the fund and now doubts the agency will approve the instrument in May.
According to Reuters, asset managers and other firms expect the SEC to reject applications for spot ETH ETFs following “disappointing” discussions.