SEC Takes Aim at MetaMask: Consensys Sued Over Alleged Unregistered Securities and Brokerage
Popular crypto wallet MetaMask faces legal trouble as the SEC accuses its parent company, Consensys, of violating securities laws. The lawsuit alleges Consensys acted as an unregistered broker through features like Swaps and Staking, while also offering unregistered securities through staking programs. This action follows similar crackdowns by the SEC on other crypto companies and could set a precedent for future regulations in the crypto space.
Because Bitcoin
June 28, 2024
According to a recent Blockworks report, the U.S. Securities and Exchange Commission (SEC) has sent shockwaves through the crypto industry with a lawsuit filed against Consensys, the company behind the widely used MetaMask crypto wallet. The SEC alleges that Consensys has been operating in violation of federal securities laws by acting as an unregistered broker and offering unregistered securities through key MetaMask features like Swaps and Staking.
Unregistered Brokerage Activities in MetaMask Swaps:
The lawsuit specifically targets MetaMask Swaps, a feature that allows users to conveniently exchange cryptocurrencies directly within the wallet. The SEC argues that Consensys has facilitated millions of crypto asset transactions through Swaps since 2020, with a significant portion involving crypto asset securities. This function, according to the SEC, constitutes acting as an unregistered broker.
The complaint details how Consensys allegedly performed actions typical of a broker, including:
- Matching buy and sell orders: The SEC claims Consensys essentially acts as a middleman, connecting users who want to buy or sell crypto assets.
- Recommending trades: The regulator points out that Consensys promotes "best value" trades within Swaps, potentially influencing user decisions.
- Handling transactions: The SEC alleges Consensys takes custody of user assets, executes trades based on user instructions, and receives transaction fees.
By engaging in these activities without registering as a broker, the SEC argues, Consensys has deprived investors of crucial safeguards mandated by federal securities laws. These safeguards include registration statements that provide investors with essential information about the offered securities and the issuer's financial health, allowing for informed investment decisions.
Staking Services and Unregistered Securities:
The SEC's lawsuit doesn't stop at Swaps. The regulator also takes aim at MetaMask Staking, a service that allows users to earn rewards by locking up their crypto assets to support blockchain operations. The SEC contends that Consensys not only acted as an unregistered broker for Lido and Rocket Pool staking programs offered through MetaMask, but that these programs themselves are unregistered securities.
The complaint goes further, alleging that Consensys functioned as an underwriter for Lido and Rocket Pool by promoting and facilitating participation in their staking programs. The SEC believes these programs meet the criteria of investment contracts, a type of security that requires registration under federal law.
Despite the lawsuit, Consensys has yet to publicly comment on the matter.
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