Quick Take:

• Robinhood Crypto receives Wells Notice from SEC, joining recent probes against crypto entities.
• Consensys and Uniswap also disclosed Wells Notices from SEC last month.
• Wells Notices indicate SEC’s heightened interest in crypto industry and potential enforcement actions.
• Debate arises over SEC’s treatment of Ethereum (ETH) as a security and its implications for the broader crypto market.

The Securities and Exchange Commission (SEC) has escalated its oversight of the crypto industry with the issuance of a Wells Notice to Robinhood’s crypto division, signaling potential enforcement actions. In response, Robinhood Crypto disclosed in a Form 8-K filing that the SEC staff recommended enforcement action against the platform for alleged securities violations.

This development follows a series of Wells Notices issued against other crypto entities in recent weeks. Consensys, the firm behind MetaMask Wallet, and decentralized exchange Uniswap both acknowledged receiving similar notices from the SEC last month. The growing number of Wells Notices underscores the SEC’s expanding interest in regulating various aspects of the crypto space.

Wells Notices serve as preliminary warnings from the SEC, indicating its intention to pursue enforcement actions and outlining alleged securities law violations. Crypto lawyers have raised concerns about the frequency of these notices, suggesting a concerted effort by the SEC to assert its authority over the crypto market.

The debate intensifies over the SEC’s treatment of Ethereum (ETH) as a potential security. Consensys’ lawsuit against the SEC revealed that the agency had scrutinized MetaMask products and raised concerns about the platform’s compliance with securities regulations. While the SEC has not explicitly classified ETH as a security in previous lawsuits against major crypto players like Kraken, Coinbase, and Binance, speculation persists about its regulatory stance on ETH.

The uncertainty surrounding Ethereum’s regulatory status adds complexity to the evolving crypto landscape. As the SEC continues to navigate enforcement actions and regulatory oversight, the crypto industry awaits clarity on key issues, including the classification of ETH and the broader implications for market participants.

Is the SEC trying to declare eth a security?

It is still unclear if the SEC wants to fold ether into its jurisdiction through the Wells Notices. When Consensys sued the SEC last month over its categorization of ether, the company revealed that it had also been sent a Wells Notice. The notice included the SEC scrutinizing MetaMask Swaps and MetaMask Staking products, alleging that Consensys was acting as an unregistered broker-dealer, the firm said in its lawsuit.

Throughout the complaint, Consensys shed light on the SEC’s focus on ether and accused the agency of trying to regulate ether as a security, citing an SEC “formal” order to investigate Ethereum  ETH -3.29% a year ago. 

Past SEC charges against crypto entities have involved allegations such as not registering as an exchange or a clearing agency, DeWaal said. 

“There seems to be some claims now that eth is a security, which could underpin all of those actions,” DeWaal said. However, without seeing the Wells Notices, it’s unclear what each one relates to, DeWaal added. 

Consensys alleged that the SEC views eth is a security in its complaint, but Robinhood and Uniswap have not said whether their probes mentioned ether, said Daniel Davis, formerly general counsel at the Commodity Futures Trading Commission. Davis is also listed as an attorney for BAM Management U.S. Holdings for the case between Binance and the SEC. Davis is now a partner at Katten Muchin Rosenman LLP. 

However, if the SEC were to declare ETH a security, it would most likely be through an enforcement action, Davis added. 

So far, the SEC has not said explicitly that ether is a security in lawsuits lodged against big names in the crypto industry, including Kraken, Coinbase and Binance, Davis said.