SEC Launched Formal Investigation Into Ethereum’s Security Status Over a Year Ago, New Court Filing Shows

A court filing submitted on Monday has revealed that the U.S. Securities and Exchange Commission (SEC) has been investigating ethereum’s potential classification as a security for more than a year. Blockchain and web3 software technology company Consensys, which filed the document, sued the securities regulator last week to challenge the SEC’s authority to regulate ether as a security.

According to the court document:

On March 28, 2023, Gurbir Grewal, Director of the Division of Enforcement, approved the Formal Order of Investigation in the matter of ‘Ethereum 2.0’ … delegating to the SEC staff broader authority to investigate and subpoena individuals and entities involved in the buying or selling of ETH.

“The Commission affirmed the issuance of the Formal Order shortly thereafter on April 13, 2023,” the filing continues. “The Formal Order predicates this delegation on the SEC’s information showing possible offers and sales, since at least 2018, of ‘certain securities, including, but not limited to ETH, as to which no registration statement was or is in effect … and for which no exemption was or is available.'”

Should the current SEC under Chair Gary Gensler classify ethereum as a security, it would contradict previous guidance from the SEC during Jay Clayton’s chairmanship. Bill Hinman, then Director of Corporation Finance at the SEC, articulated in a speech at the time that both ethereum and bitcoin were not considered securities.

Moreover, the filing indicates that the SEC’s five-member commission confirmed the “Ethereum 2.0” investigation on April 13, 2023. This confirmation preceded Chair Gensler’s testimony before the House Financial Services Committee, during which he evaded several questions from Committee Chair Patrick McHenry (R-N.C.) about the SEC’s view on ethereum’s potential security classification.

Gensler has consistently stated that most crypto tokens, besides bitcoin, are securities. However, he refrained from directly answering whether ETH is a security. Earlier this month, 48 U.S. lawmakers sent a letter to Gensler asking him to clarify whether ETH is a security. Last October, the SEC approved nine ether futures exchange-traded funds (ETFs). However, the securities watchdog is expected to reject spot ethereum exchange-traded fund (ETF) applications next month.

Congressman Tom Emmer (R-MN) spoke to Fox Business’ Eleanor Terrett about the issue on Monday: “Last year, Gary Gensler refused to tell Congress if the SEC categorizes ETH as a commodity or a security. Newly released court documents show that the SEC’s enforcement team was directed, just weeks before Gensler’s congressional testimony, to proceed as though ETH is a security. ” The lawmaker added:

This regulatory dishonesty is reprehensible – it’s tainting our great capital markets, harming investors, and threatening U.S. global leadership.

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