U.S. SEC investigates Ethereum Foundation, future of Ethereum ETF unclear

Editor of this issue|Wu Shuo Blockchain

On the evening of March 20, a sudden report from CoinDesk caused a huge shock:

According to The Ethereum Foundation’s GitHub repository shows that the organization is facing inquiries from unnamed “national authorities.” According to information dated February 26, 2024, the Ethereum Foundation stated that they had received a voluntary inquiry from national authorities, which included a request for confidentiality.

Previously, the Ethereum Foundation website disclosed the following: “The Ethereum Foundation (Ethereum Foundation) has never been contacted in a non-public manner by any institution anywhere in the world. The Ethereum Foundation Any inquiries from government agencies that go beyond the usual scope will be publicly disclosed." But the note has now been removed.

A lawyer familiar with the situation said that Swiss regulators may have submitted a document request to the Ethereum Foundation and may be working with the U.S. Securities and Exchange Commission (SEC). “I also think it’s fair to say that the Ethereum Foundation is not the only entity that they’re seeking information from,” the lawyer told CoinDesk, adding that other overseas entities are also under scrutiny.

Original text:

https://www.coindesk.com/business/2024/03/20/ethereum-foundation-under-investigation-by-state-authority/

Subsequently, a Fortune magazine report revealed more details:

The U.S. SEC is launching an aggressive legal action to bring the second most popular cryptocurrency to Ethereum is classified as a security. The SEC’s Ethereum investigation involves asking companies to provide any documents and financial records of their dealings with the Ethereum Foundation. The SEC’s investigation into the Switzerland-based Ethereum Foundation began shortly after Ethereum moved to a new governance model of “proof-of-stake” in 2022-09. Another company that received a subpoena described it as narrow in scope and focused on the Ethereum Foundation, saying it had received the subpoena within the past few weeks.

According to people familiar with the subpoenas at three different companies. The people asked Fortune not to identify them or their companies out of fear of retaliation from Gary Gensler, the agency's chairman, who some described as "vindictive."

This key jurisdictional issue hinges on whether a particular cryptocurrency is a security, an issue that has not yet been explicitly resolved by the courts. While Bitcoin is generally considered a commodity, SEC Chairman Gensler has said his agency treats the vast majority of other cryptocurrencies as securities that must be registered with the SEC. Emails released as part of the Ripple trial show that SEC staff carefully considered how to express this assertion clearly, and one official wanted to say that the agency "does not ... believe it is necessary to regulate Ethereum." That changed after Gensler took over the agency in 2021 and Ethereum moved to proof-of-stake the following year.

At the time, Gensler said that any crypto-assets generated by a blockchain using a proof-of-stake model would likely be similar to an investment contract and therefore be classified as a security, although he did not talk about any specific currency. In March 2023, he again suggested that proof-of-stake tokens could be regulated as securities, although he has since declined to comment specifically on Ethereum, including during an SEC oversight hearing before the House Financial Services Committee.

In October, the problem became more complicated after the SEC approved nine ETFs tracking the Ethereum futures market, which is regulated by the U.S. Commodity Futures Trading Commission (CFTC), indicating that Ethereum is a commodity. CFTC Chairman Rostin Behnam has repeatedly stated that his agency views ether as a commodity.

But last month, controversial cryptocurrency firm Prometheum (which has been approved to operate as a special purpose broker-dealer) announced its intention to provide custody services for Ethereum as an SEC-regulated security, which once again gave rise to Ethereum’s regulatory status adds to uncertainty. One recipient of a recent subpoena speculated that Gensler was trying to use Prometheum as a Trojan horse to classify Ethereum as a security.

The issue has been thrust into the spotlight recently as major financial firms including Fidelity and BlackRock race to gain spot approval for an Ethereum ETF, and all signs point to the SEC Their applications will be rejected in May.

Original text:

https://fortune.com/crypto/2024/03/20/sec-gary-gensler-ethereum-security-commodity-crypto-foundation/

Coinbase Chief Legal Officer Paul Grewal tweeted that millions of Americans hold ETH. Since its launch in 2015, ETH has been crucial to the cryptocurrency field. ETH is a commodity, not a security. This This is also the position that the U.S. Securities and Exchange Commission has taken for many years. The SEC has no sufficient reason to reject the ETH ETP application. The reasons and remarks cited are as follows: SEC Corporate Finance Director Hinman once clearly stated that ETH is not a security; before serving as SEC Chairman, Gary Gensler testified before Congress that ETH is not a security; the CFTC and the federal court unanimously confirmed that ETH is a commodity; ETH futures contracts will begin trading on CFTC-regulated futures trading platforms in 2021; the Howey test does not determine the status of ETH; even if the Howey test is performed, ETH completely fails the test.

https://twitter.com/iampaulgrewal/status/1770594620969501035

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