SEC and Gensler believed that Ethereum was an unregistered security for at least a year

In a recent development within Consensys’ lawsuit against the U.S. Securities and Exchange Commission (SEC), new information has emerged regarding the SEC’s position on Ethereum.

According to a report from Fox Business producer Eleanor Terret, the SEC, led by Chairman Gary Gensler, believes that Ethereum – the cryptocurrency of the Ethereum network – has functioned as a security for at least some time.

Unregistered securities trading

Terret cites court documents filed by Ethereum software company Consensys on April 29 showing that the SEC and Gensler have believed for at least a year that Ethereum is trading as an “unregistered securities business in violation of current federal regulations.”

This revelation comes shortly after Consensys filed an unredacted complaint against the SEC in a Texas federal court on April 25. This was in response to a notice from Wells of the SEC stating that the SEC planned to sue the company for non-compliance with federal securities laws.

Exploring status of Ethereum as a security

Gurbir Grewal, the head of the SEC’s Enforcement Division, formally approved an investigative order on March 28, 2023 to investigate Ethereum’s status as a security. Known as “Ethereum 2.0,” this investigation authorizes enforcement personnel to investigate and subpoena individuals and entities involved in Ethereum trading.

The SEC had instructed subpoena recipients to maintain strict secrecy over the investigation if they wished to receive more information. This investigation is said to be based on the belief that potentially unregistered offers and sales of Ethereum have been taking place since 2018.

This view from the Gensler-led SEC would directly contradict previous SEC guidance chaired by Jay Clayton. In June 2018, Bill Hinman, then director of Corporation Finance, stated that Ether, like Bitcoin, was not a security.

The five-member Commission cleared the Division of Enforcement’s “Ethereum 2.0” investigation on April 13, 2023. Shortly thereafter, at a hearing before the House Financial Services Committee, Gensler declined to answer questions about whether the SEC considered Ether as a security considered.

The news comes as applicants and companies involved in a potential Ether-listed fund in the US suggest the SEC is likely to delay its approval decision until May. Bloomberg ETF analyst Eric Balchunas emphasizes that Gensler’s view on Ether could have a significant impact on this decision-making process.