The U.S. SEC has filed a lawsuit against Consensys, alleging the company operated as an unregistered broker through MetaMask. Learn more about the $250 million in fees and the implications for the crypto industry.
SEC Cracks Down on Consensys Over Unregistered Brokerage Activities Through MetaMask
In a significant move, the United States Securities and Exchange Commission (SEC) has filed a lawsuit against Consensys, the parent company of MetaMask, accusing it of operating as an unregistered broker. The SEC's complaint, filed on June 28, claims that Consensys has engaged in the unregistered offer and sale of securities through MetaMask Swaps since 2020. The charges could have far-reaching implications for the crypto industry, highlighting regulatory challenges and the need for compliance.
Allegations of Unregistered Brokerage Activities
According to the SEC's complaint, Consensys has accumulated over $250 million in fees by brokering crypto asset transactions and offering staking services without proper registration. This, the SEC argues, has deprived investors of essential protections. The agency seeks a permanent injunction, civil penalties, and other equitable relief against Consensys for these alleged violations of federal securities laws.
“Since January 2023, Consensys has engaged in the unregistered offer and sale of securities in the form of crypto asset staking programs and acted as an unregistered broker through its MetaMask Staking service. By its conduct as an unregistered broker, Consensys has collected over $250 million in fees,” the complaint states.
Facilitation of Staking Programs
The SEC's filing also asserts that Consensys has acted as an intermediary in unregistered transactions by facilitating investments in staking programs offered by Lido and Rocket Pool. By doing so, Consensys allegedly acted as an underwriter of securities, participating in key points of their distribution. “Consensys has offered and sold tens of thousands of securities for two issuers: Lido and Rocket Pool. By this conduct, Consensys acts as an underwriter of those securities and participates in the key points of their distribution,” the filing reads.
Consensys' Legal Battle with the SEC
In response to a Wells notice from the SEC, Consensys sued the regulator in April, challenging its potential attempts to classify Ether (ETH) and related staking services as securities. Consensys contends that the SEC has overstepped its authority and is attempting to redefine well-established legal standards to expand its jurisdiction through lawsuits.
“The SEC has been pursuing an anti-crypto agenda led by ad hoc enforcement action. This is just the latest example of its regulatory overreach — a transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit,” Consensys stated. The company also emphasized that the SEC “has not been granted authority” to regulate software interfaces like MetaMask and vowed to continue pursuing its case in Texas.
The SEC's Stance on Staking Programs
The SEC's complaint classifies staking programs offered by Lido and Rocket Pool as investment contracts, suggesting that investors involved in these programs are participating in a common enterprise with a reasonable expectation of profits. According to the SEC, these programs meet the criteria for securities and should have been registered accordingly.
“The Lido and Rocket Pool staking programs are each offered and sold as investment contracts and, therefore, securities. Specifically, as described in more detail below, investors make an investment of ETH in a common enterprise with a reasonable expectation of profits from the managerial efforts of Lido and Rocket Pool, respectively,” the SEC argues. By facilitating these staking programs through MetaMask, the SEC claims that Consensys has acted as an unregistered broker and underwriter.
Previous SEC Actions on Staking Services
The SEC's crackdown on staking services is not new. In February, the Kraken crypto exchange settled with the SEC for $30 million and shut down its staking services for U.S. clients following a similar suit. Coinbase, another major exchange, is also disputing the SEC's claims regarding staking as a security in court.
Staking involves locking cryptocurrencies in a digital wallet to support a blockchain network's security and operations. Validators confirm transactions and create new blocks based on their staked amount, earning rewards in return. These rewards provide stakers with passive income, making staking an attractive option for many crypto investors.
The SEC's lawsuit against Consensys underscores the ongoing regulatory challenges facing the crypto industry. As the agency continues to scrutinize unregistered brokerage activities and staking services, crypto companies must navigate an increasingly complex legal landscape. This case highlights the importance of regulatory compliance and the potential consequences of failing to adhere to federal securities laws.
Stay informed with OMGfin for the latest updates on crypto regulations and how they impact your investments.
(ANA PAULA PEREIRA, COINTELEGRAPH, 2024)