SEC Faces Criticism Over Ethereum Scrutiny Since 2023

Industry experts Scott Johnsson and Adam Cochran have raised concerns about the SEC’s recent actions. They questioned the approval of Ethereum Futures ETFs in October 2023, which came despite ongoing inquiries into whether Ethereum qualifies as a security. Their criticism underscores potential conflicts in the SEC’s regulatory approach. Both experts suggest that this contradiction could undermine investor confidence in the regulatory framework.

Johnsson criticizes the SEC for accelerating the effectiveness of ETFs. He argues that this move conflicts with the SEC’s duty to consider public interest and investor protection. Cochran supports this view, proposing that SEC Chair Gary Gensler testify under oath. He believes this would clarify the decision-making process behind the ETF approvals.

This controversy emerges amid the SEC’s broader scrutiny of Ethereum. The situation highlights a tension within the agency’s approach to cryptocurrency regulation. Experts like Johnsson and Cochran advocate for greater transparency and accountability in these regulatory decisions.

Reminder also for everyone in the back:
The SEC allowed these futures ETFs to go effective AND accelerated their effectiveness, which required the SEC to have "due regard to the public interest and the protection of investors". How can you have due regard here while believing ETH… https://t.co/2SoEBJCebq pic.twitter.com/uT4nKmwVUf

— Scott Johnsson (@SGJohnsson) April 29, 2024

SEC Ramps Up Ethereum Security Investigations

The SEC has been closely examining Ethereum’s status as a potential security since early 2023. This scrutiny includes a formal investigation order issued in March 2023 by SEC Director Gurbir Grewal. The order permits the agency to investigate Ethereum transactions comprehensively. This capability allows the SEC to issue subpoenas and gather detailed witness testimony.

Recent court filings reveal the depth of the SEC’s focus on Ethereum. These documents indicate the SEC’s intent to solidify its regulatory reach over the cryptocurrency. This proactive approach by the SEC has led to a lawsuit from Ethereum software firm Consensys, which challenges the SEC’s handling and classification of Ethereum.

The ongoing investigations have stirred a significant debate over the regulatory treatment of cryptocurrencies in the U.S. The lack of clarity from the SEC has left investors seeking more predictable guidelines. The agency’s enforcement-first strategy has been a critical point of contention in the evolving digital asset landscape.

Gensler Evades Ethereum Classification Questions

Now, revealed court filings show that the SEC has been investigating Ethereum since March 2023. Specifically, the agency has reportedly been building a case to challenge ETH’s security status for more than a year. According to reports, the SEC director of the Division of Enforcement, Gurbir Grewal, approved an investigation order in March of last year. That allows the agency to investigate both the buying and selling of Ethereum. The presence of a formal order of investigation allowed the SEC to issue subpoenas and gather witness testimony under oath.

The investigation’s implications are far-reaching, potentially affecting how Ethereum is treated under U.S. securities laws. This ongoing scrutiny could have significant consequences for the cryptocurrency market and regulatory practices. The detailed approach taken by the SEC suggests a deliberate effort to define the legal boundaries of Ethereum’s status.

Gensler’s refusal to classify Ethereum as either a commodity or a security in Congressional testimonies has been notable. Consensys alleges that Gensler’s non-committal responses are part of a strategic move to expand the SEC’s regulatory authority. This accusation points to a broader strategy by the SEC to establish a comprehensive regulatory framework for cryptocurrencies.

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