Consensys’ Legal Battle with SEC Halted by Federal Court

In a lawsuit against the US Securities and Exchange Commission (SEC) and its commissioners, including Chair Gary Gensler, Consensys was unsuccessful in getting a ruling from a federal judge in Texas. A court declaration that Ether (ETH) is not a security was sought in the April lawsuit, which also sought to stop SEC enforcement operations against Consensys’ MetaMask wallet software. When the SEC started taking enforcement action in June, things got complicated.

Consensys’ Claims Dismissed

Consensys argued that the SEC was investigating Ethereum and possibly classifying it as a security, which was underscored by a Wells notice issued to the firm. This notice raised concerns about MetaMask’s swap and staking features, hinting at potential regulatory actions. However, Judge Reed O’Connor dismissed these claims, stating that a Wells notice does not amount to a final SEC decision nor does it impose legal consequences. According to O’Connor, such notices are preliminary and do not establish definitive legal obligations.

The judge also found Consensys’ claims regarding the SEC’s investigation into Ether irrelevant, noting that the SEC dropped its investigation in July after Ether exchange-traded funds (ETFs) were approved in May. As the investigation ceased, the court determined no grounds existed to pursue the lawsuit further.

Despite the setback, Consensys remains committed to defending against the SEC’s enforcement actions related to its MetaMask software. The company disputes the SEC’s allegations of unregistered broker operations and unauthorized securities sales through MetaMask Swaps. Consensys plans to file a motion to dismiss this aspect of the case, indicating that the legal struggle between the blockchain firm and the SEC is far from over.