SEC sues MetaMask developer Consensys as it extends legal crusade against crypto industry
On Friday, the Securities and Exchange Commission brought its latest lawsuit against the crypto industry, this time targeting Consensys, a blockchain firm focused on the Ethereum network best known for its MetaMask wallet product.
Echoing similar complaints brought against other crypto firms, such as Coinbase and Kraken, the SEC is alleging Consensys violated federal securities laws by failing to register as a broker and dealer while offering services for securities, ultimately collecting over $250 million in fees.
While the accusations echo past actions, the lawsuit is notable for the controversy surrounding the escalating legal battle. In April, after receiving a Wells notice—a formal letter that the SEC plans to sue—Consensys preemptively filed its own lawsuit against the agency, arguing for clarity over the issue of whether Ethereum is a security.
Just 10 days ago, Consensys announced that it had received a letter from the SEC, notifying the firm that the agency had closed its so-called Ethereum 2.0 investigation, with Consensys arguing that meant Ethereum didn’t fall under the agency’s jurisdiction—a topic of great consequence for crypto industry participants. In Friday’s lawsuit, the SEC didn’t name Ethereum as one of the unregistered securities offered by Consensys.
“Consensys inserted itself squarely into the U.S. securities markets while depriving investors of the protections afforded by the federal securities laws,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a press release.
Ethereum 2.0
Founded by one of the developers of Ethereum, Joseph Lubin, Consensys deviates from other recent subjects of lawsuits from the SEC. Rather than functioning as an exchange like Coinbase or Kraken, Consensys develops software, including MetaMask, a digital wallet that allows users to hold and move cryptocurrencies, as well as stake Ethereum—a process that involves earning a yield.
In its 59-page lawsuit, the SEC alleges that Consensys violated securities laws by allowing the “swapping” of crypto assets through MetaMask, as well as offering staking services, taking the role of an unregistered broker in both scenarios.
The SEC argues that Consensys has brokered over 36 million crypto asset transactions, including at least 5 million involving what the agency deems to be securities. The SEC has previously brought similar charges related to staking against Kraken and Coinbase, with Kraken settling for $30 million and Coinbase fighting the charges.
‘Regulatory overreach’
Despite the new charges, many in the crypto industry will likely view the new complaint as a win because it doesn’t name Ethereum as a security. Fortune previously reported that the SEC had been investigating Ethereum’s security status through a series of subpoenas to related companies, leading to the preemptive lawsuit from Consensys. However, the political waters seemed to change with the passage of a crypto regulation bill in the House of Representatives in May, with the SEC signaling approval for Ethereum ETFs immediately after—a decision onlookers had previously viewed as unlikely.
While the lawsuit won’t break new legal ground for the SEC, it does represent a new front in a multipronged campaign against many of the industry’s top companies. The agency filed the Consensys complaint in the U.S. District Court for the Eastern District of New York.
A spokesperson for Consensys, who noted that the firm’s lawsuit against the SEC in Texas is ongoing, said in a statement that the company “fully expected the SEC to follow through on its threat to claim our MetaMask software interface must register as a securities broker. The SEC has been pursuing an anti-crypto agenda led by ad hoc enforcement action. This is just the latest example of its regulatory overreach.”
