- New York sought the SEC’s backing to classify Ether as a security in the KuCoin case.
- Coinbase’s FOIA request unveiled the SEC’s reluctance to classify Ether as a security.
- After operating without state registration, KuCoin settled with New York for $22M.
Newly revealed documents, obtained through a Freedom of Information Act (FOIA) request filed by Coinbase, shed light on New York’s attempt to have the U.S. Securities and Exchange Commission (SEC) declare Ethereum’s Ether (ETH) as a security during a 2023 case against cryptocurrency exchange KuCoin.
The request, outlined in a series of documents acquired by Coinbase under the Freedom of Information Act (FOIA), sheds more light on current controversies surrounding Ethereum’s regulatory position.
New York Attorney General’s Request for SEC’s Opinion
In June 2023, Shamiso Maswoswe the chief of the Investor Protection Bureau at the New York Attorney General’s office requested the SEC’s involvement. She asked the agency to file an amicus brief supporting the argument that Ether should be classified as a security. Although the New York Department of Financial Services (DFS) has authority over securities and commodities, Maswoswe emphasized that having the SEC’s view would benefit investor protection. “Whether it is or not will not be dispositive in our case,” Maswoswe wrote, stressing that the court’s ruling on the classification of Ether would be crucial for future legal clarity.
Despite the request, the SEC did not provide the clear stance New York hoped for. Internal communications from the SEC show that the agency had hesitated to define its position on Ether publicly. Earlier, the SEC had suggested that Ethereum might be considered a commodity, similar to Bitcoin (BTC). Still, it remained uncertain, particularly following Ethereum’s shift to a proof-of-stake consensus mechanism.
The SEC’s Reluctance to Declare Ether as a Security
The SEC’s opinion concerning ether has been debated at the agency for years. At first, the agency seemed to treat ETH as a commodity, just like Bitcoin (BTC). However, the SEC’s opinion shifted as Ethereum moved to a proof-of-stake (PoS) consensus mechanism. Internal communications revealed that while the SEC had indicated doubt when classifying ETH as an asset, it was inclined toward treating it as a commodity.
The SEC’s reluctance to make a clear ruling regarding the status of ether reflects the regulators’ current difficulties in classifying digital assets. This hesitancy by the SEC to resolve the issue leads to wider regulatory confusion, which hinders the creation of clear jurisdictions for the industry.
Ongoing Uncertainty in Cryptocurrency Regulation
The release of these internal SEC documents as part of Coinbase’s broader effort to release over 10,000 records acquired through FOIA requests points to the cryptocurrency industry’s ongoing regulatory challenges.
Although the SEC insists on going after crypto companies to pursue enforcement actions, internal communications clearly show no consensus on regulating digital assets. These documents also shed light on the SEC’s broader stance towards other cryptocurrencies, including Ripple’s XRP which the SEC has investigated for possible securities law violations.
