SEC Sues Crypto Firm Consensys for Failing to Register as Broker

Austin Weinstein and Olga Kharif, Bloomberg News

The US Securities and Exchange Commission (SEC) headquarters in Washington, DC, US, on Thursday, May 9, 2024. The US Securities and Exchange Commission is scrutinizing statements that Boeing Co. made about its safety practices following a near-tragic January accident aboard one of its 737 Max 9 planes. Photographer: Tierney L. Cross/Bloomberg , Bloomberg

(Bloomberg) -- The US Securities and Exchange Commission said crypto firm Consensys Software Inc. broke its rules when it failed to register as a brokerage and improperly collected millions of dollars in fees.

Consensys, which operates the popular crypto wallet MetaMask, handled millions of transactions for clients without proper regulatory oversight, the SEC said.

The regulator highlighted Consensys’ work with so-called staking programs, which pay customers a yield for letting their tokens be used to facilitate blockchain transactions. The SEC has previously sued companies like Kraken and Coinbase Global Inc over their staking products.

The case in federal court in Brooklyn, New York, is the latest in the SEC’s ongoing crackdown on the digital asset industry.

The SEC said that since 2020, Consensys brokered more than 36 million crypto transactions, including at least 5 million that were securities.

The agency’s chair, Gary Gensler, has for years said that many digital assets are unregistered securities subject to SEC rules. In recent months, the agency has sued several high-profile companies for acting as unregistered brokerages or over staking programs.

“Consensys has inserted itself into the US securities markets, yet failed to act in accordance with the provisions of the federal securities laws to which it is subject and that exist to protect investors,” the SEC said in its complaint.

“This is just the latest example of its regulatory overreach - a transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit,” Consensys said in a statement. “We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask. We will continue to vigorously pursue our case in Texas for ruling on these issues because it matters not only to our company but the future success of web3.”

In April, the software firm disclosed it received a notice from the SEC that the regulator would potentially bring an action against the company related to its MetaMask products. Separately, Consensys is suing the SEC in federal court in Texas to fend off regulation of the Ethereum blockchain.

Consensys is a linchpin of the Ethereum blockchain, the second largest after Bitcoin’s. The firm’s founder, Joe Lubin, was instrumental in the development of Ethereum, and is considered a co-founder of the network.

(Updates with Consensys’s statement in the eighth paragraph)