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Lawsuit to Force SEC Decision on Ethereum Thrown Out

By Wesley Grant
August 23, 2024
in Compliance and Regulation, Digital Assets & Crypto, News
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Wooden Gavel Resting on American Flag Reflecting Table.

A U.S. appeals court has dismissed a lawsuit against the U.S. Securities and Exchange Commission that aimed to force the SEC to take a formal position on whether ether and the Ethereum network are classified as securities or commodities.

The suit, brought by crypto law firm Hodl Law, was intended as a preemptive move, given that the SEC has previously taken action against multiple crypto services, alleging they operated as unauthorized securities brokers.

Hodl Law argued that since it trades ether on the Ethereum blockchain, there was a “realistic danger” that the firm could face a SEC enforcement action in the future. However, a panel of three judges found no indication that the SEC had ever considered taking action against Hodl.

According to Cointelegraph, the judges also noted that if the SEC were to rule that Ethereum transactions violated the Securities Act, Hodl Law would be in violation due to its current activities. In addition, the judges stated that Hodl Law had no authority to compel the SEC to create regulations or even respond to their requests.

Indefinite Timeline

After the approval and launch of ether ETFs earlier this year, there was cautious optimism that the SEC pause further enforcement actions. The ether ETF approval came as a surprise, given the SEC’s previous objections to ether and Ethereum, but it doesn’t mean there won’t be challenges down the road.

“The SEC has not taken an official position as to whether Ether or Ethereum is a ‘security’ under the Securities Act, and it is possible that the Commission will never decide that Ether or Ethereum is a ‘security’ under the Securities Act,” the judges wrote in their opinion.

Overshadowing Positives

Regulatory uncertainty around crypto has overshadowed what has otherwise been a positive year. In the wake of the bitcoin ETF launch, bitcoin hit an all-time high, and institutional investors have made significant investments in crypto, blockchain, and tokenization on a large scale.

However, unease will likely persist in the crypto community until a more substantial regulatory framework is established.

“I don’t believe the question we wanted answered is burdensome or extreme: is using the Ethereum Network a violation of federal securities laws?” Hodl Law’s senior managing partner Fred Rispoli wrote in an X post. “We won’t get that answer for now, but we have some more avenues to attempt to force the SEC to provide an answer to us. We are not giving up.”

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