Are regulators with the U.S. Securities and Exchange Commission gearing up to take down Ethereum? Given the saber-rattling by officials — including SEC Chairman Gary Gensler — it certainly seems possible.
The agency went on a crypto-regulatory spree in September. First, at its annual The SEC Speaks conference, officials promised to continue bringing enforcement actions and urged market participants to come in and register their products and services. Gensler even suggested crypto intermediaries should break up into separate legal entities and register each of their functions — exchange, broker-dealer, custodial functions, etc. — to mitigate conflicts of interest and enhance investor protection.
Next, there was an announcement that the SEC’s Division of Corporation Finance plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to its Disclosure Review Program this fall to assist in registering crypto market participants. Then, there was testimony before various Senate Committees on proposed legislation to overhaul crypto regulation, where Gensler reiterated his belief that nearly all digital assets are securities, implicitly endorsing his view that such digital assets and relevant intermediaries should register with the SEC.
But perhaps the most ground-shaking shots occurred when the SEC took aim at Ethereum, possibly reversing a years-long détente that began when a previous SEC official stated that Ether (
Second, the SEC’s allegation that transactions occurring on the Ethereum blockchain are subject to U.S. jurisdiction because more of Ethereum’s nodes are located in the U.S. than any other country would expand the SEC’s reach far beyond the United States. Based on that reasoning, the SEC could assert jurisdiction over an Ethereum-based token developed in Germany, offered and sold in Germany exclusively to Germans, because the cluster of Ethereum nodes in the U.S. means that the transactions effectively occurred in the United States. Such an outcome would seem highly unlikely to pass legal muster.
Does all this aggressive posturing by the SEC foreshadow an enforcement action against Ethereum (who would they sue, anyway?) or actions against foreign actors for foreign conduct on Ethereum? More likely, this is a negotiating tactic meant to scare the industry into succumbing to the SEC’s jurisdiction voluntarily. “Come in and talk to us — and register,” essentially. Because if Ethereum is at risk of being deemed a security/exchange — Ethereum! — then surely so are all the other tokens and decentralized finance platforms in the industry — except, presumably, Bitcoin (for now).
Adam Pollett is a partner in Eversheds Sutherland’s Securities Enforcement and Litigation practices where he defends financial institutions, broker-dealers, investment advisers and individuals in regulatory investigations and enforcement matters involving the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and state securities regulators.
Andrea Gordon is counsel at Eversheds Sutherland and advises clients on white collar, compliance, SEC and FINRA matters. She has extensive experience conducting internal investigations, evaluating and developing corporate compliance programs, and representing both corporate and individual clients in regulatory inquiries, administrative proceedings and complex commercial litigation.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
