A Fortune report reveals the opening of investigations by the SEC into the Ethereum Foundation and other companies that have collaborated with the foundation: security risk for Ethereum?
According to a Fortune report dated March 20, the Securities and Exchange Commission (SEC) has initiated an investigation into the Ethereum Foundation, the Swiss non-profit organization at the heart of the Ethereum ecosystem. The commission has also filed lawsuits against several companies that have had dealings with the Swiss foundation. The investigations have also required companies to provide documents and financial records related to their interactions with the non-profit organization.
Reportedly, the decision could be motivated by Ethereum’s transition from proof-of-work to proof-of-stake, which has drawn the SEC’s attention to the potential classification of Ether as a security.
The investigation was revealed through a commit (change) on February 26 in Ethereum’s GitHub repository.
“We have received a voluntary enquiry from a state authority that included a requirement for confidentiality.”
Before February 26, the Ethereum Foundation’s website contained the following statement in the footer:
“The Ethereum Foundation (Stiftung Ethereum) has never been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed. Stiftung Ethereum will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations.”
With the February 26 commit, the footer was removed along with the icon indicating the warrant canary.
A warrant canary is a form of textual or visual warning that some companies include on their websites to indicate they have never received any secret government subpoenas or warrants for document requests. In practice, warrant canaries provide companies with a way to signal if they have received subpoenas or secret orders from the government to hand over user data.
If a government agency requests information, the company may remove the text or icon, thus suggesting to their users that they have received the request without explicitly stating so.
SEC’s position
On several occasions at the United States Congress, SEC Chairman Gary Gensler has consistently avoided directly answering questions regarding the classification of Ether. While Gensler has made it clear that Bitcoin is classified as a commodity, the commission has never definitively stated Ethereum’s classification.
However, shortly after the transition to proof-of-stake, Gary Gensler stated that tokens using a PoS consensus algorithm could be considered securities since investors rely on the efforts of others to make a profit.
Reasons for the investigation
According to information provided to CoinDesk by a lawyer familiar with the matter, Swiss authorities may have served a document request to the Ethereum Foundation and may be in contact with the SEC of the United States.
If the SEC were to classify Ether as a security, it could lead to a conflict with the U.S. Commodity Futures Trading Commission, which had previously approved futures products on Ethereum.
