The SEC believes the U.S. government has jurisdiction over all transactions on the ETH chain.
A federal lawsuit has recently been filed against crypto influencer Ian Balina. He is being charged for his Initial Coin Offering as he did not register it as a security before its 2018 launch.
The SEC has filed civil suits against individuals and unregistered ICOs for years now and has constantly been a ‘thorn in the side” of many web3 projects and creators.
The lawsuit seemed to be the same type of lawsuit that has transpired over the years involving the SEC but some users have taken extra care to read the fine print of this recent lawsuit.
In the 69th paragraph of the lawsuit the SEC makes a power move by claiming it had the right to Susie Balina because his case not only concerns transactions made in the U.S but also because the entire Ethereum network falls under the scope of influence of the SEC.
The SEC then stated that the ETh sent to Balina was “validated by a network of nodes on the Ethereum blockchain, nodes which are considered clusters more densely in the United States than in any other country” the SEC concludes that because of this the transactions took place in the United States to which Balina was responsible and non-compliant under US law.
Read More: Gensler And The SEC Not Backing Down
Translated loosely this means that the SEC believes that because more nodes of the Ethereum blockchain are in the United States then that means any transactions on the Ethereum chain fall under the purview of the SEC and all further regulations created in the country. This idea means to state that all transactions on the Ethereum chain are American by default. The amount of nodes in the US is about 45.85% with the second largest density being 19% in Germany.
A law professor from the University of Kentucky, Mr Brian Frye stated:
“saying that enables the SEC to characterize doing business on the Ethereum blockchain as doing business on a US securities exchange, which from their perspective is convenient and makes things so much simpler”
If the SEC is able to successfully classify all activity on the Ethereum chain as being done on an American securities exchange then that would in turn give all jurisdiction of the blockchain over to the regulatory body. This situation could be a direct escalation in the SEC overseeing the Ethereum chain, it could possibly even push the jurisdiction of the SEC over crypto overall.
Fyre did state that there was really no legal weight to the language used and that due to the nature of the lawsuit the court will probably be unlikely to to weigh in on that specific issue, that being said there is of course still some significance to the statement as a whole.
Fyre made a statement on what he believes to be the real intention of the SEC in making that statement:
“I think they may be trying to get their vision of what Ethereum is, and how it works, out into the judicial ecosystem. It’s the SEC saying, ‘This entire body of financial activity is within the scope of the stuff that we regulate, and therefore we’re going to regulate all of it.’”
This claim and the way it was placed in the SEC complaint showcases another aspect of how serious the U.S SEC is when it comes to regulating crypto. Gary Gensler, SEC Chair, stated that the Ethereum merge could be the step that brings the blockchain closer to the definition of a security. In speaking on staking Gensler stated his view on the method is that staking could indeed be interpreted as a security under the Howey Test.
Gensler previously had not taken a strong stance on Ethereum as the previous administration stated Ethereum was “sufficiently decentralized” and not a security. Fyre believes if the SEC were to claim that Ethereum was an unregistered security they would face no problems or pushback from the courts. The victory for Gensler and his administration could be as simple as the proper placing of words and syntax.
[…] influencer has brought pain to the Ethereum community as the federal agency claimed that all of Ethereum belongs under SEC jurisdiction. This stems from a statement in the 69th paragraph of the lawsuit that stated Ethereum is mostly […]