In what’s shaping up to be a high-stakes legal drama, we’re seeing the United States Securities and Exchange Commission (SEC) lock horns with the prominent crypto firm, Consensys, specifically targeting its Metamask operations. The allegations are severe: the SEC is accusing Consensys of breaching securities laws by operating as a non-registered securities broker.
The argument of the SEC, as presented in official court documents, centers on the idea that Consensys has acted as a covert broker for crypto asset securities via its MetaMask Swaps service since as early as October 2020. Similarly, the SEC alleges that Consensys has broken the law by offering and selling securities without registration through its crypto staking programs.
In an environment where crypto transactions are becoming increasingly commonplace, Consensys, through Metamask Swaps facilitated around 36 million of them since the onset of 2020. Of these, at least 5 million have involved crypto asset securities. The Metamask service, known for being one of the most popular crypto wallets available, enables users to not only store their crypto assets but also facilitate the buying and selling of cryptocurrencies through asset swaps.
The SEC has taken issue with this Metamask’s ‘Swap’ service. Their charge is that a number of the swappable crypto assets listed are essentially securities, and that Consensys, by enabling these swaps without prior registration, has effectively played the role of an illicit securities broker, violating securities laws in the process.
As the SEC complaint deepens, it lists digital currencies such as Polygon (MATIC), Decentraland (MANA), Chiliz (CHZ), The Sandbox (SAND), and Luna (LUNA) as the available crypto securities brushed under the carpet and traded on Metamask’s swap platform.
Bulking up the accusations, the SEC also accuses Consensys of assuming a “traditional function of the securities market” via the offering and selling of securities for Lido and Rocket Pool. The regulator argues that the staking programs fronted by Lido and Rocket Pool are essentially investment contracts and that Consensys overstepped its boundaries by offering these unregistered securities on its ‘MetaMask Staking’ platform.
This legal battle between the SEC and Consensys isn’t occurring in isolation, though; it follows a separate lawsuit filed by Consensys against the SEC just months back, accusing it of an “unlawful seizure of authority.” The firm had demanded judicial relief against potential action by the SEC, including declaration of Ethereum’s non-security status and their authority over crypto-related matters.
An initial victory appeared to be in sight for the crypto firm when the SEC dropped its investigation into Ethereum’s status as a security. However, the SEC issued a caution that they remained open to bringing enforcement actions against them on other fronts.
In response to the SEC’s lawsuit, Consensys has declared their intent to “vigorously pursue” their counter-lawsuit initially filed against the SEC. Moreover, the firm candidly expressed their anticipations of the SEC asserting that MetaMask should be registered as a securities broker. This legal tussle, it seems, is far from over.
