SEC and Gary Gensler Viewed Ethereum as a Security for More Than a Year, New Documents Reveal

While bitcoin has been recognized as a commodity, the same cannot be said for the status of ethereum, 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, appear 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 from FOX ethereum-was-security-for-at-least-year” target=”_blank” rel=”noopener” data-wpel-link=”external”>reportCourt documents filed by Consensys on April 29 stated that the SEC and Gensler appear to have believed for at least a year that Ether was an unregistered security and had been traded in violation of existing federal regulations.

The latest development comes after Consensys filed an unredacted complaint against the agency in federal court in Texas in response to receiving a “Wells notice,” which outlined the SEC's plans to sue the ethereum software company for alleged violations of federal securities laws.

The filing indicated that the SEC launched an investigation dubbed “ethereum 2.0” due to its belief that potential sales of certain securities, including Ether, had occurred since at least 2018. Whether the Gensler-led SEC considered the asset to be a security , would contradict previous guidance given by former President Jay Clayton.

In a now-infamous 2018 speech, then-CFO Bill Hinman said that ethereum, like bitcoin, was not a security, leading the industry to believe that the SEC would not regulate the two major cryptocurrencies, citing a “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 the committee chairman , Patrick McHenry, on the regulatory status of ethereum.

The beginning of the investigation was marked by unusual secrecy. The FOX report even claimed that recipients of the subpoena were instructed to sign confidentiality agreements to receive information about the progress of the investigations. It is not clear why the SEC kept such a secret.

Consensys Lawsuit Against the SEC

Consensys filed a lawsuit against the SEC last week over its handling of ethereum regulation. The company claimed that the regulatory watchdog classified Ether as a security and targeted the company's Metamask software.

The complaint also mentions that SEC staff sent Consensys a notice from Wells earlier this month, indicating the agency's intention to take enforcement action. Consensys has maintained that it has cooperated with the SEC and has even provided more than 88,000 pages of documents in response to multiple subpoenas over the past year.

Consensys also argued that any investigation stemming from Ether being considered a security would violate the company's Fifth Amendment rights and the Administrative Procedures Act.

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