ConsenSys says the SEC designated ETH a security but won’t say where

Unless Joe Lubin’s massive Ethereum conglomerate has lied in a court document filed yesterday, “the Securities and Exchange Commission (SEC) now claims that ETH is a security subject to SEC regulation.” That’s a quote from ConsenSys’ new lawsuit filed in the US District Court for the Northern District of Texas. It’s the first time a major crypto company has credibly claimed that the SEC itself has designated ETH a security.

For years, the SEC has designated certain crypto transactions as securities transactions and occasionally, commissioners have referred to current coins or tokens as unregistered securities.

Now, according to ConsenSys, the SEC currently classifies ETH as a security. The news comes seven years after Ethereum’s initial coin offering (ICO). It has also been 19 months since the Merge switched Ethereum from proof-of-work (PoW) to proof-of-stake (PoS) validation.

Why is this news coming from a complaint by ConsenSys?

Maddeningly, the public still doesn’t have definitive proof from the SEC that it has classified ETH as a security. Nor has it designated particular sets of ETH transactions as securities transactions. The news comes instead from ConsenSys’ claim in a corporate lawsuit that “the SEC now claims that ETH is a security.”

Given this ambiguity, it’s helpful to start with the undisputed evidence. The SEC undeniably sent ConsenSys a Wells Notice — a formal document that explains the agency’s intent to sue unless the recipient responds with convincing counterarguments and evidence to prevent commissioners from filing the lawsuit.

A Wells Notice is typically a formality — an advance warning of a future legal action — but on rare occasions allows a prospective defendant to talk their way out of a lawsuit.

In this instance, ConsenSys has described the Wells Notice it received from the SEC. ConsenSys also characterized some of its telephone conversations with SEC staff relating to the Wells Notice.

According to ConsenSys, the SEC doesn’t designate ETH as a security in its Wells Notice. Instead, ConsenSys summarizes the SEC’s complaints about MetaMask Swaps and MetaMask Staking transactions. Importantly, section 68 of the suit doesn’t mention ETH at all.

Read more: Gary Gensler can’t say if ETH is a security because of the SEC

The redacted document that claims ETH is a security

So when and where did the SEC designate ETH a security? ConsenSys doesn’t answer, nor does it claim that the SEC designated ETH a security within the Wells Notice document; ConsenSys merely claims that the SEC, elsewhere, “now claims that ETH is a security.”

Instead of clearly specifying where and when the SEC made this designation, ConsenSys redacted this information. Specifically, section 10 claims that the SEC “secretly cemented its power-grab” over ETH as a security by issuing some document. That document is redacted and is “a document the SEC has designated non-public.”

Obviously, the reader is left to wonder what that document is. Unless the SEC or US District Court for the Northern District of Texas agrees to unredact that document’s description, the public might never know precisely where and when the SEC ostensibly designated ETH as a security.

It’s also possible that ConsenSys is lying by mischaracterizing actions by the SEC as designating ETH a security. Although lying in a court filing carries severe penalties, this is a remote possibility. It’s certainly in ConsenSys’ interests to make the argument about whether ETH is a security — an argument that has broad appeal and public support — instead of whether or not it illegally operated MetaMask Swaps or MetaMask Staking services.

If ConsenSys can reframe the argument about something related to but not actually about its allegedly illegal actions, it might be able to win in the court of public opinion — even if it loses in the court of law.

Read more: Is ether a security? New York’s Attorney General thinks so

ConsenSys wants to frame the argument

It’s certainly in ConsenSys’ best interests that people believe that the SEC has designated ETH as a security. The more outraged and indignant, the better. ConsenSys even wrote a sweeping, aspirational blog defending its lawsuit. The company writes that it’s defending “how future generations will manage economic, financial, social, political, and technological systems, creating a more equitable, transparent, and innovative world.” It’s trying to make a hashtag trend, #ETHforAll. 

The question is: Did three of the five SEC Commissioners ever actually vote that ETH is a security? It’s been seven years since its ICO, and 19 months since the Merge. If the SEC had designated ETH as a security, it could have let the public know or explained its opinion within a lawsuit, as it has with dozens of other coin designations.

Why, where, and when did the SEC decide to seal this determination?

According to ConsenSys, the SEC made an ‘about-face’ in April 2023 and secretly classified ETH as a security. It’s the first credible allegation of this designation in court. However, at time of publication, neither the SEC nor any of its five commissioners have confirmed this alleged designation.

Got a tip? Send us an email or ProtonMail. For more informed news, follow us on X, Instagram, Bluesky, and Google News, or subscribe to our YouTube channel.