SEC files lawsuit against Consensys

The Securities and Exchange Commission filed a suit against Consensys Software on Friday.

The SEC is alleging that the company failed to register as a broker as well as offering and selling unregistered securities. 

The lawsuit didn’t come as a surprise to Consensys, which said that it “fully expected” the SEC to “follow through on its threat to claim our MetaMask software interface must register as a securities broker.”

“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. We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask. We will continue to vigorously pursue our case in Texas for ruling on these issues because it matters not only to our company but the future success of Web3,” a spokesperson told Blockworks.

In its suit, the SEC targeted MetaMask Swaps. The firm, through Swaps, has “brokered over 36 million crypto asset transactions — including at least 5 million transactions in crypto asset securities” since 2020, the SEC argued.

The regulator also alleges that Consensys “holds itself out as a place to buy and sell crypto assets (which include crypto asset securities), recommends trades with — as Consensys itself puts it — the ‘best’ value, accepts investor orders, routes investor orders, handles customers assets, carries out trading parameters and instructions on the customer’s behalf, and receives transaction-based compensation.”

Read more: Is the SEC weighing a lawsuit against Consensys?

“By its conduct as an unregistered broker, Consensys has collected over $250 million in fees,” the suit claims. 

On top of Swaps, the regulator is also targeting Staking.

“Indeed, Consensys developed and deployed MetaMask Staking for the specific purpose of offering and selling the Lido and Rocket Pool staking program investment contracts,” the SEC said.

Following that, the regulator claims that Lido and Rocket Pool are unregistered securities.

“Consensys’s unregistered offer and sale of the Lido and Rocket Pool securities, as to which it also acts as an unregistered broker, violates the federal securities laws […] Indeed, registration statements provide investors with material information about the securities offering and the issuer’s business and financial condition, so that investors can make informed investment decisions,” the SEC claimed. 

Specifically, the regulator is making the argument that Consensys acted as an “underwriter” for Lido and Rocket Pool through its offerings.

The claims by the SEC Friday line up with what Consensys has previously said that the SEC alleged in its Wells notice. According to a lawsuit filed by Consensys against the SEC earlier this year, the SEC targeted MetaMask Swaps in an investigation, warning Consensys that it may pursue legal action.

Last summer, the SEC filed suits against both Coinbase and Binance. The regulator alleged that the two also offered and sold unregistered securities.

The SEC also alleged that Coinbase and Binance operated as unregistered brokers (as well as unregistered exchanges). The SEC specifically targeted Coinbase’s staking service as well. Despite an attempt by Coinbase to dismiss the suit, the regulator’s claims moved forward in a court earlier this year, with Judge Katherine Polk Failla finding that the SEC “sufficiently alleged that Coinbase offers and sells the Staking Program as an investment contract.”

Updated June 28, 2024 at 1:48 pm ET: Added comment from Consensys.

Updated June 28, 2024 at 1:19 pm ET: Expanded on SEC allegations against Consensys.

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