SEC sues Consensys over MetaMask’s brokerage, staking services

The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Consensys, the parent company of MetaMask. According to a complaint on June 28, the company has been operating as an unregistered broker and engaging in the unregistered offer and sale of securities through MetaMask Swaps since 2020. 

The complaint claims that Consensys has collected more than $250 million in fees by brokering crypto asset transactions and offering staking services without proper registration, thereby depriving investors of crucial protections. The SEC seeks a permanent injunction, civil penalties, and other equitable relief against Consensys for these alleged violations of federal securities laws.

“Since January 2023, Consensys has engaged in the unregistered offer and sale of securities in the form of crypto assetstaking programs, and acted as an unregistered broker, through its MetaMask Staking service. By itsconduct as an unregistered broker, Consensys has collected over $250 million in fees."

In addition, the regulator claims that by facilitating investments in Lido and Rocket Pool’s staking programs, Consensys has acted as an intermediary in unregistered transactions, denying investors essential protections. 

“Consensys has offered and sold tens of thousands of securities for two issuers: Lido and Rocket Pool. By this conduct, Consensys acts as an underwriter of those securities and participates in the key points of their distribution,” reads the filing. 

Consensys sued the SEC in April after receiving a Wells notice from the agency, challenging potential attempts to classify Ether ( ETH ) and related staking services as securities. The company said it “fully expected” the regulator to follow through on its investigation: 

“The SEC has been pursuing an anti-crypto agenda led by ad hoc enforcement action. This is just the latest example of its regulatory overreach - a transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit.”

The company argues that the SEC "has not been granted authority" to regulate software interfaces like MetaMask. "We will continue to vigorously pursue our case in Texas for ruling on these issue," Consensys said in a statement. 

SEC goes after staking 

The SEC’s complaint classifies staking programs offered by Lido and Rocket Pool as investment contracts, claiming investors involved in staking programs are investing Ether ( ETH ) in a common enterprise with a reasonable expectation of profits. Neither Lido nor Rocket Pool has filed a registration statement with the SEC. 

"The Lido and Rocket Pool staking programs are each offered and sold as investmentcontracts and, therefore, securities. Specifically, as described in more detail below, investors makean investment of ETH in a common enterprise with a reasonable expectation of profits from themanagerial efforts of Lido and Rocket Pool, respectively."

The SEC argues that by facilitating these staking programs through its MetaMask platform, Consensys has acted as an unregistered broker and underwriter.

Staking service providers have been sued by the agency before. In February, Kraken crypto exchange settled with the SEC for $30 million and closed its staking services for U.S clients following a suit. Another company under the regulator's radar is Coinbase. The exchange has been disputing the claims of the agency regarding staking as a security in the courts.

Staking involves locking cryptocurrencies in a digital wallet to support a blockchain network’s security and operations. Based on their staked amount, validators confirm transactions and create new blocks, earning rewards in return. The rewards provide stakers with passive income. 

Related:  Ether ETF approvals show staking may still be a security in SEC's eyes