The SEC's investigation into ETF 2.0 has just concluded, but the lawyers are arguing

Author: jk, Odaily Planet Daily

On June 18, the U.S. Securities and Exchange Commission (SEC) announced the conclusion of its investigation into Ethereum 2.0 and will not take enforcement action against Consensys. This is undoubtedly a significant victory for Ethereum developers, technology providers, and the Ethereum ecosystem.

A week has passed since the discussion of this matter, and many legal professionals have written detailed legal opinions regarding it. However, interpretations of this decision vary among different parties. Some lawyers believe that the end of the investigation means that all topics related to Ethereum as a security (except for staking) will no longer be investigated, while others believe that this is merely a temporary "ceasefire" concerning only Consensys.

This article will summarize the reactions from various parties, particularly the differing views within the legal community regarding this event.

Background

On June 18, the SEC issued a notice to Consensys announcing the conclusion of its investigation. The investigation stemmed from Consensys previously suing the SEC (for more details, refer to “ConsenSys Sues SEC, Which May Affect Ethereum ETF Approval Results”). Although the wording of this notice was somewhat reluctant, it still expressed that the investigation into Ethereum 2.0 would be concluded. The SEC itself used some ambiguous language: "Although we do not agree with the facts or legal conclusions stated in the June 4 letter in this notice or in any other circumstances, based on the information we have to date, we do not intend to recommend that the Commission take enforcement action against your client Consensys Software Inc." However, "this notice should not be construed as a declaration of innocence for that party or as an indication that no action will be taken as a result of the staff's (concluded) investigation."

Original notice issued by the SEC. Source: SEC

On the same day this event occurred, Consensys immediately published a statement, branding this as a significant milestone victory. The article mentioned, "On June 7, we sent a letter to the SEC requesting confirmation that the approval of the Ethereum ETF on May 5 (based on Ethereum being a commodity) meant that the agency would conclude its investigation into Ethereum 2.0. Today, the SEC's enforcement division informed us that they are concluding the investigation into Ethereum 2.0 and will not take enforcement action against Consensys." Consensys also insisted that the SEC must abandon its unprincipled and opaque enforcement regulation and provide the much-needed regulatory clarity for the industry.

What Do Lawyers Say?

The stance of Consensys's lawyers aligns with that of the company. Laura Brookover, Consensys's Senior Legal Counsel and Head of Litigation and Investigations, expressed her views on the X platform. She posted, "The entire investigation (not just against Consensys) has concluded. The letter states that there will be no charges against Consensys, but the conclusion of the investigation means that no charges will be brought against anyone. It covers the entire Ethereum ecosystem, so anyone contributing code or trading ETH is within the scope of the investigation. Now, the entire investigation has ended, not just against Consensys, but for everyone."

She also cited the SEC's enforcement manual, stating, "An investigation that has led to enforcement action can only be closed after all enforcement actions are completed." Therefore, the conclusion of this investigation means no enforcement action will be taken against anyone.

Additionally, it is very important to note that yesterday, Laura Brookover, along with Sam Enzer, a partner at Cahill Gordon & Reindel, attended an interview with the podcast media Unchained, where they shared many insights not mentioned on the X platform. They believe that this letter, to some extent, represents internal disagreements within the SEC:

"It indicates that the enforcement personnel have persuaded Gensler that if they initiate enforcement action, accusing the merged Ethereum (ETH) of being offered or sold as a security, they will fail and be embarrassed. I believe Gary Gensler internally believes that ETH is a security, or that due to the staking mechanism, ETH is being offered and sold as a security. He thinks it is a security, right? Because people deposit something of value and receive rewards. In his view, this makes it a security, or he very much hopes to have the authority to regulate it. But I think his staff has told him we will lose this case."

However, this statement has also faced significant skepticism, especially since the ETF situation remains unresolved and other exchanges and crypto institutions are still embroiled in lawsuits related to Ethereum. David Barrera, founder of Enumma, posted that there is no part of the SEC's letter indicating that the investigation has "ended." This decision merely means that the SEC will not sue others who offer or sell Ethereum, but according to the SEC's enforcement manual, the staff concluding the investigation and deciding not to sue one party does not mean the investigation has "ended," nor does it mean that other parties will not be sued. In other words, Uniswap or other institutions may still be involved in legal cases due to Ethereum.

David further stated, "We disagree… the wording 'we do not agree with your factual statements and legal conclusions' is not standard or common language in a letter indicating the investigation will not continue. That is to say, the SEC only mentioned this in the case against Consensys, which does not necessarily represent a complete abandonment of litigation in the future."

In the podcast, Sam also noted,

"In the letter closing the investigation, the SEC has discretion, right? Criminal prosecutors have prosecutorial discretion, and regulatory enforcement agencies have regulatory enforcement discretion. When they decline a case, it does not necessarily indicate that the behavior is legal or compliant with the law. It could be because the SEC lacks resources this year, or they have other more important matters to deal with… but they are not bound from going back. Unfortunately, the SEC often changes its position."

At the same time, Laura expressed the view that the SEC's conclusion of the investigation is unrelated to Liquid Staking and Restaking, which are entirely different matters:

"The SEC's investigation into those activities actually falls under a separate independent investigation and is not part of the Ethereum 2.0 investigation. Therefore, the conclusion of the Ethereum 2.0 investigation does not actually indicate the SEC's stance on liquid staking, restaking services, or pooled staking."

Will This Have an Impact on the Final Approval of the ETF and Other Lawsuits?

Currently, it seems unlikely that the approval of the ETF will be affected. Coindesk reported that SEC Chairman Gary Gensler told senators during the budget hearing on the 13th that the final approval of the Ethereum ETF will be completed this summer.

During a budget defense hearing before a subcommittee of the Senate Appropriations Committee, Gensler stated that after a group of ETFs received preliminary approval, the process is "running smoothly." The agency had previously approved preliminary applications, but he indicated that the final registration requirement—the submission of the S-1 form—is now being handled at the "staff level."

Regarding other lawsuits, as legal cases generally progress slowly, there are currently no updates. Odaily will continue to follow and report on this matter.