ConsenSys, the parent company of popular cryptocurrency wallet MetaMask, has revealed that it has received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), indicating the intention to take enforcement action against MetaMask for alleged violations of securities laws. In response, ConsenSys has filed a lawsuit against the SEC on Thursday.
According to legal documents, ConsenSys claims that the SEC intends to classify Ethereum (ETH) as a security, criticizing it as an “illegal seizure” of Ethereum. The lawsuit requests that the federal court declare ETH not to be a security and argues that any investigation against ConsenSys based on the premise that Ether is a security would violate administrative procedures. ConsenSys also seeks a declaration from the court stating that MetaMask is not a broker-dealer under federal law, does not provide custodial services, and does not violate securities laws.
ConsenSys filed the lawsuit against the SEC in response to receiving a Wells Notice on April 10. The Wells Notice indicated the SEC’s intention to take enforcement action against MetaMask for alleged violations of securities laws. ConsenSys denies the role of a broker-dealer and claims that MetaMask is merely an interface that does not hold customers’ digital assets or execute any transactions.
In its lawsuit, ConsenSys references the view of the Commodity Futures Trading Commission (CFTC), the sister regulatory agency of the SEC, which classifies ETH as a “commodity” rather than a security. CFTC Chairman Rostin Behnam emphasized in a congressional hearing in early March that ETH is a commodity, not a security, and called for congressional legislation to regulate BTC and ETH, the two largest tokens that account for 60% to 70% of the total cryptocurrency market value.
It is currently unclear whether the SEC will actually file a lawsuit following the Wells Notice or if the issue will be resolved between ConsenSys and the SEC in a Texas court. Further observation is needed.
Shortly before this new lawsuit between ConsenSys and the SEC, leading decentralized exchange Uniswap confirmed on April 11 that it had also received a Wells Notice from the SEC and may face regulatory litigation.
Receiving a Wells Notice from the SEC does not necessarily mean that a lawsuit will be formally initiated. The typical process after receiving a Wells Notice is as follows: 1) The SEC issues a warning to individuals or companies following its investigation, 2) Upon receiving a Wells Notice, the company has 30 days to refute the allegations and present arguments proving its innocence, 3) The SEC has six months after submitting the notice to decide whether to file a lawsuit and take enforcement action.
In the past, the probability of the SEC filing a lawsuit has been relatively high, especially in the field of cryptocurrency where companies often proceed to civil litigation and many ultimately choose to settle and pay fines.
On the other hand, while Metamask’s official stance had previously indicated no immediate plans for issuing its own native token, the recent warning from the SEC may further hinder the progress of the company’s token issuance plans. However, the SEC seems to still insist on its position that Ethereum is a security, which could potentially bring more impact to the cryptocurrency world and make the chances of a spot ETF being approved this year even more uncertain. This is a development worth continuous attention.