SEC Sues Consensys Over MetaMask, Alleges Securities Violations

The SEC has sued Consensys, alleging that its digital asset wallet MetaMask engaged in illegal securities sales and acted as an unregistered broker.

ConsenSys is a popular blockchain software company known for developing technologies like MetaMask. It focuses on decentralised applications & tools around the Ethereum blockchain ecosystem. 

On 28 June 2024, The United States Securities and Exchange Commission (SEC) filed a lawsuit against Consensys in federal court in Brooklyn, New York.

The SEC body alleged that Consensys, known for its blockchain software for the Ethereum blockchain, illegally sold unregistered securities and acted as an unregistered broker through its Crypto wallet, MetaMask.

According to the SEC’s allegations, the ConsenSys firm generated $250 million in revenue with the unregistered securities trading services.

Earlier this year, Consensys tried to challenge the SEC preemptively by filing its lawsuit in Texas. They argued that the SEC was overstepping its authority. Consensys took this action after receiving three subpoenas last year and a Wells notice from the SEC, which warned that Consensys was violating federal securities laws.

SEC vs legal hurdles

Many legal experts noted that the SEC body overstepped its authority & tried regulating the crypto sector via enforcement & also pressured the crypto companies to follow traditional financial rules, which are not even applicable to cryptocurrencies.

Recently Coinbase crypto exchange’s legal team filed a suit against the SEC & FEDIC body to get clarity on which rules or laws are used by the SEC body to regulate the sector. 

In a recent development, the Supreme Court determined that the Chevron deference, a longstanding judicial doctrine granting federal agencies deference if their interpretations of federal regulations were deemed “reasonable” and if Congress had not explicitly addressed those regulations, is no longer considered a valid standard for regulatory agencies.

Many experts noted that the Supreme Court’s decision to invalidate the Chevron deference could create a more favourable environment for crypto companies. This is because there are currently unclear rules for the crypto sector, and regulatory agencies cannot enforce actions based on old rules that do not clearly define the nature of crypto assets.

Read also: Binance Scores Partial Victory as Judge Dismisses Some SEC Charges