The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Consensys, the parent company of MetaMask, alleging violations related to unregistered brokerage and the sale of securities.
According to the complaint filed on June 28, Consensys has been operating as an unregistered broker and conducting unregistered securities offerings through its MetaMask Swaps service since 2020.
The SEC claims that Consensys has earned more than $250 million in fees from crypto asset transactions and staking services without complying with federal securities laws, thereby leaving investors without necessary protections.
The SEC seeks permanent injunctions, civil penalties, and other equitable relief against Consensys for these alleged violations.
In response to the lawsuit, Consensys has been vocal about its position, stating, “Since January 2023, Consensys has engaged in the unregistered offer and sale of securities in the form of crypto asset staking programs, and acted as an unregistered broker, through its MetaMask Staking service.
“By its conduct as an unregistered broker, Consensys has collected over $250 million in fees.”
The SEC further alleges that Consensys acted as an intermediary in unregistered transactions by facilitating investments in staking programs offered by Lido and Rocket Pool.
The complaint reads, “Consensys has offered and sold tens of thousands of securities for two issuers: Lido and Rocket Pool.
By this conduct, Consensys acts as an underwriter of those securities and participates in the key points of their distribution.”
Consensys had preemptively sued the SEC in April following a Wells notice, challenging the classification of Ether and related staking services as securities.
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The company criticized the SEC’s approach, accusing it of regulatory overreach and attempting to expand its jurisdiction through litigation.
The SEC’s complaint specifically targets staking programs offered by Lido and Rocket Pool, arguing that these programs constitute investment contracts and thus qualify as securities.
The SEC asserts that investors participating in these staking programs expect profits from the managerial efforts of Lido and Rocket Pool, despite neither entity filing a registration statement with the SEC.
Staking, a process where cryptocurrencies are locked to support blockchain networks, involves validators confirming transactions and earning rewards, akin to passive income.
The SEC’s scrutiny extends beyond Consensys; previously, Kraken settled with the SEC for $30 million over similar allegations, prompting the cessation of its staking services for U.S. clients.
Coinbase, another prominent entity, is also contesting the SEC’s stance on staking in ongoing legal proceedings.
In essence, the SEC’s actions underscore its regulatory stance on cryptocurrency-related activities, particularly staking services, emphasizing compliance with securities laws to protect investors’ interests.
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