SEC sues Consensys for violating securities laws through MetaMask

Consensys Software Inc. is in hot water. The SEC has charged the company for selling unregistered securities and acting as an unregistered broker through its MetaMask Staking and MetaMask Swaps services. The complaint, filed in the Eastern District of New York, accuses Consensys of depriving investors of necessary protections.

According to the SEC, Consensys has been offering and selling unregistered securities through MetaMask Staking since January 2023.

They sold tens of thousands of liquid staking tokens like stETH and rETH, which are created by Lido and Rocket Pool. Unlike traditional staked tokens that are locked up, these liquid tokens can be traded freely.

The SEC also alleges that Consensys has been operating as an unregistered broker through these transactions, violating federal securities laws.

“MetaMask Swaps has been operational since October 2020, facilitating transactions in crypto asset securities without SEC registration. MetaMask Swaps allows users to trade crypto assets directly from their MetaMask Wallets.”

SEC

The agency further claims that Consensys solicited investors, provided investment information, and received transaction-based compensation without proper registration.

The service pulls pricing information from various third-party liquidity providers and displays the best rates to the investor. By handling customer assets and facilitating order execution, Consensys acts as a broker, which requires SEC registration.

“By allegedly collecting hundreds of millions of dollars in fees as an unregistered broker and engaging in the unregistered offer and sale of tens of thousands of securities, Consensys inserted itself squarely into the U.S. securities markets while depriving investors of the protections afforded by the federal securities laws.”

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement

The SEC’s complaint is comprehensive. It alleges that since 2016, Consensys has marketed itself as a leader in the crypto asset industry. However, its products, MetaMask Staking and MetaMask Swaps, function exactly like traditional brokerage services.

SEC wants Consensys to pay penalties

The SEC seeks injunctive relief and penalties against Consensys. They aim to stop Consensys from continuing these unregistered activities and to impose financial penalties for past violations.

The complaint emphasizes the need for transparency and investor protection, which Consensys allegedly ignored. The SEC further alleges that Consensys’s MetaMask Wallet, which stores investors’ crypto assets, is central to these services.

MetaMask Wallet generates a public and private key pair for each blockchain selected by the investor. This wallet interacts with MetaMask Swaps and MetaMask Staking, making it a crucial part of Consensys’s alleged brokerage activities.

The complaint states that through MetaMask Swaps alone, Consensys brokered over 36 million crypto asset transactions, including at least 5 million transactions in crypto asset securities. These activities generated over $250 million in fees, according to the SEC.

Jai Hamid