Consensys Lawsuit Against SEC Over Ethereum Gets Tossed Out

A lawsuit brought by Ethereum software giant Consensys against the U.S. Securities and Exchange Commission (SEC) was dismissed by a U.S. district judge on Thursday, who wrote that the firm’s claims were ultimately “moot” because the agency’s alleged actions were not “final.”

“Because Plaintiff has not identified final agency action that would render the claim fit for judicial review and because withholding consideration subjects Plaintiff to scant, if any, hardship, the claim lacks a ripe case or controversy,” Judge Reed O’Connor wrote.

Wall Street’s top regulator and Consensys have been warring for some time now. 

Consensys had filed a preemptive suit against the SEC in April after receiving a so-called Wells notice—or a warning of an impending lawsuit over securities violations—over its popular Ethereum wallet, MetaMask.

Consensys alleged in the suit that the SEC internally viewed Ethereum as a security, and was seeking a declaration from the regulator that it was not in fact considered a security. (Disclaimer: Consensys is one of 22 investors in an editorially independent Decrypt.) 

“The U.S. Securities and Exchange Commission seeks to regulate ETH as a security, even though ETH bears none of the attributes of a security—and even though the SEC has previously told the world that ETH is not a security, and not within the SEC’s statutory jurisdiction,” the original lawsuit alleged. 

Consensys said in June that it had heard the regulator was dropping its investigation into Ethereum.

But later that month, the SEC sued Consensys over its MetaMask Swaps service, which allows users to stake crypto. Staking is the process of “locking up” cryptocurrency to keep a blockchain’s network running. Those who stake cryptocurrency can earn rewards in the process. 

The SEC has gone after a number of crypto companies for providing the service, though, alleging that it gives investors too much risk and little protection. 

Ethereum is the programming platform and blockchain behind the second biggest cryptocurrency, ETH. Developers can use Ethereum to build decentralized applications (dapps) and products such as games, crypto wallets, exchanges, or even new tokens.

Consensys is a prominent company that builds these dapps. The firm issued a statement following the ruling.

“In April 2024, Consensys filed a lawsuit to protect the Ethereum ecosystem from the SEC’s regulatory overreach and stand up for the industry that has been subject to the agency’s reckless enforcement agenda,” a spokesperson said. “Unfortunately, the Texas court today dismissed our lawsuit on procedural grounds without looking at the merits of our claims against the SEC.”

“Our suit against the SEC laid bare the overzealous investigation of Ethereum, and policymakers and the public at large voiced deep concern over the SEC’s investigation of blockchain software development,” the statement continued. “In a significant win for the industry, the SEC dropped its ‘Ethereum 2.0’ investigation after our litigation was filed, and the Texas court today recognized that the SEC already gave Consensys the relief it sought on that critical issue for the Ethereum ecosystem. Outside of court, we have also seen signs of what could be a momentous step change in Washington’s sentiment towards cryptocurrencies and digital assets during a crucial period for U.S. politics. We are on the right path, but must remain vigilant. Consensys is resolved to keep fighting for the rights of blockchain developers in the U.S. as we contest the SEC’s action in Brooklyn.”

The SEC did not immediately respond to Decrypt‘s request for comments.

Editor’s note: This story is breaking and will be updated with additional information.

Edited by Andrew Hayward