Ethereum Case Receives Court Date for Oral Arguments
The 9th Circuit Court of Appeals scheduled oral arguments for July 18, 2024, to address a legal challenge from cryptocurrency law firm Hodl Law, PLLC.
The firm is appealing the dismissal of its lawsuit against the US Securities and Exchange Commission (SEC), which sought to clarify the classification of Ethereum and its native currency, Ether. This hearing will examine whether the SEC’s conduct and enforcement policy is consistent with the Securities Act of 1933.
Legal Argument for Hodl’s Law
Hodl Law initially filed suit against the SEC in a California federal court, arguing that the agency’s enforcement actions against cryptocurrency projects and lack of clear guidelines could harm its business operations.
Specifically, the firm sought a declaratory judgment stating that transactions involving Ether on the Ethereum blockchain did not violate securities laws.
However, the case was dismissed in July on the grounds that the Hodl Act failed to establish a direct conflict between itself and the SEC. The district court also ruled that because the SEC had not yet made a final decision or taken concrete action against the firm, the firm could not challenge the agency’s approach.
SEC’s Response and Rationale
In its response, the SEC argued that its concerns about future Hodl Act enforcement actions were purely speculative and lacked the specific harm required for legal standing. The agency argued that the hypothetical risks associated with potential investigations did not justify a lawsuit. The SEC also noted that the law firm’s characterization of its regulatory approach as “regulation through litigation” was insufficient to warrant court intervention.
The SEC also argued that without a definitive policy or final appeal decision, the Hodl Act could not bring a valid complaint under the Administrative Procedure Act. The commission therefore believes that the initial dismissal is appropriate and that allowing Hodl Law to amend his complaint would be futile.
Hodl Law, however, claimed that SEC Chairman Gary Gensler’s previous comments suggested that Ether could be considered a security, contradicting a different SEC official’s speech in 2018 stating that Ether did not constitute a security. The firm’s attorney, Frederick Rispoli, criticized the SEC for not clearly defining whether trading on the Ethereum network violates securities regulations.
The case is particularly relevant given that the SEC has recently intensified enforcement efforts against crypto companies like Coinbase for unregistered securities.
Consensys’ Case Against the SEC
Simultaneously, Consensys filed a lawsuit against the SEC in a Texas court, alleging that the agency had overreached in its regulation. Like Hodl Law, the firm claims that SEC Chairman Gary Gensler is trying to reverse the regulator’s previous stance that Ethereum is a commodity, not a security.
The lawsuit also revealed that Consensys received a Wells Notice from the SEC indicating potential enforcement action regarding MetaMask’s clearing and staking features. But Consensys insists that Ethereum lacks the centralized governance that defines security and claims that the SEC has been quietly investigating the crypto asset since early 2023.
Additionally, Coinbase’s Chief Legal Officer Paul Grewal criticized Gensler’s classification of certain cryptocurrencies as securities. Grewal also noted inconsistencies between Gensler’s statements and the SEC’s previous admissions in court.
As a result, the 9th Circuit Court of Appeals will hear oral arguments to determine whether the Hodl Act concerns are valid and whether the SEC’s approach constitutes overreach. The hearing will address the complexities of crypto regulation and the SEC’s role in providing clear guidance to market participants.
Also read: Former Digitex Futures Exchange CEO Pleads Guilty to Circumventing U.S. Banking Law
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Kelvin is a distinguished author specializing in crypto and finance, with a bachelor’s degree in Actuarial Science. Known for her sharp analysis and insightful content, she is fluent in English and specializes in comprehensive research and on-time delivery.
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