SEC Permanently Suspends Ethereum Investigation; Will Ripple be Next?

As the SEC closes its investigation into Ethereum, the question remains whether the regulator might take a similar action in its multi-year lawsuit against Ripple. 

The U.S. SEC is closing its probe of Ethereum 2.0, stating it will not pursue charges claiming that certain past ETH sales are securities transactions. 

Ethereum Survives SEC 

Ethereum-focused software company Consensys Inc. announced the development today in a statement titled Ethereum Survives the SEC. 

ETHEREUM SURVIVES THE SEC.

Today we’re happy to announce a major win for Ethereum developers, technology providers, and industry participants: the Enforcement Division of the SEC has notified us that it is closing its investigation into Ethereum 2.0.

This means that the SEC…

— Consensys (@Consensys) June 19, 2024

Consensys noted that the decision followed its letter to the SEC’s enforcement unit on June 7, asking whether the approval of multiple Ethereum spot ETFs, which was based on ‘ETH being a commodity,’ marks the end of the investigation into Ethereum 2.0.  

In response to this inquiry, the SEC confirmed that it had concluded its investigation into Ethereum 2.0 and does not wish to take any enforcement action. 

Commenting on the development, Consensys described the SEC’s decision as a victory for Ethereum developers and industry participants.

Despite this triumph, Consensys highlighted the remaining challenge in ensuring regulatory clarity for Metamask’s staking and swap services. The company said it should not take a lawsuit for the SEC to declare that these services do not violate securities laws. 

XRP Community Highlights SEC’s Treatment of Ethereum and Ripple 

Expectedly, the SEC’s decision to permanently suspend investigations into Ethereum 2.0 stirred reactions across the crypto community. In particular, XRP enthusiasts, who have been at the center of the multi-year legal tussle between the SEC and Ripple, reacted to the agency’s latest decision on Ethereum. 

Pro-XRP lawyer Bill Morgan characterized the decision as Ethereum’s second free pass from the SEC in almost six years. Notably, the ‘free pass’ phrase relates to Ethereum receiving favorable treatment from the regulatory agency. 

XRP community members asserted that Ethereum received its first free pass when William Hinman, a former SEC official, declared ETH a non-security on June 14, 2018. With the SEC not recommending an enforcement action against Ethereum, Attorney Morgan described the decision as ETH’s second free pass. 

Furthermore, Attorney Morgan contrasted the SEC’s favorable treatment of Ethereum with how the regulator has treated Ripple over the years, emphasizing that the differing approaches illustrate the agency’s arbitrary approach in the crypto space. 

Ethereum’s second free pass from the SEC almost exactly 6 years after the Hinman free speech.

Ethereum’s and Ripple’s different treatment will forever show how arbitrary the SEC has been in crypto. https://t.co/Coxf6czO9r pic.twitter.com/WNcacVYhNE

— bill morgan (@Belisarius2020) June 19, 2024

Will SEC End Its Multi-Year Enforcement Action Against Ripple 

Since 2020, Ripple has been embroiled in a lawsuit with the SEC regarding whether the sales of XRP qualify as securities transactions. 

In a July 2023 ruling, a New York federal court declared that XRP is not a security, adding that programmatic sales and other distributions of the coin do not qualify as investment contracts. 

However, the court held that Ripple’s institutional sales of XRP violated the law. At the moment, the parties are awaiting the court’s decision regarding the appropriate penalty to be imposed against Ripple for this violation. 

Although many speculated that the lawsuit could be resolved this year, one of the parties could likely appeal a portion of the court’s decision. 

Last August, the SEC requested to file an immediate interlocutory appeal challenging the decision on programmatic sales and other distributions of XRP. However, the court denied this request, ordering the SEC to wait until all pending issues are resolved. 

The remedies litigation represents the sole unresolved issue in the Ripple lawsuit, and the court could issue a final decision at any time. Afterward, this could allow the SEC to appeal the initial ruling at the Second Circuit if it chooses. 

With the SEC closing its investigations into Ethereum, the regulator could likely end its multi-year legal tussle with Ripple after the final judgment. However, it remains to be seen whether the regulator would take this route.