SEC Files Lawsuit Against Consensys for Unregistered Brokerage Activities

The US Securities and Exchange Commission accused Consensys Software Inc., which operates the popular crypto wallet MetaMask, of violating its rules by failing to register as a brokerage and collecting millions of dollars in fees improperly, as reported by Bloomberg.

According to the SEC, Consensys conducted millions of transactions for clients without proper regulatory oversight, particularly through staking programs that compensate customers for using their tokens in blockchain transactions. This case, filed in federal court in Brooklyn, New York, marks the SEC's latest effort to enforce regulations in the digital asset industry.

Since 2020, Consensys allegedly brokered over 36 million crypto transactions, including at least 5 million involving securities. SEC Chair Gary Gensler has long argued that many digital assets qualify as unregistered securities under SEC rules. Recently, the SEC has targeted several companies over similar allegations of operating as unregistered brokerages or offering staking products.

“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 stated.

“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,” the company added.

Earlier this year, Consensys disclosed receiving a notice from the SEC regarding potential legal action related to its MetaMask products. Concurrently, Consensys has initiated legal action against the SEC in Texas to contest regulation of the Ethereum blockchain. Consensys plays a crucial role in the Ethereum blockchain, which is the second largest blockchain after Bitcoin. The company's founder, Joe Lubin, played a key role in Ethereum's development and is widely regarded as one of its co-founders.