The United States Securities and Exchange Commission (SEC) claims it has jurisdiction over all ETH transactions since most ETH validators are concentrated in the United States.
A September 19 lawsuit filed by the United States Securities and Exchange Commission (SEC) against cryptocurrency researcher and YouTuber Ian Balina includes the argument that the SEC has jurisdiction over all Ethereum or ETH transactions. The SEC’s unprecedented claim is that most ETH transactions occur in the U.S. since Ethereum nodes are “clustered more densely” in the U.S. than anywhere else.
The lawsuit against Balina alleges that he conducted an unregistered offering of Sparkster (SPRK) tokens after forming a Telegram-based investing pool in 2018. So, how was the SEC able to include the jurisdiction claim regarding ETH transactions?
The SEC claims that when U.S.-based investors participated in Balina’s investing pool, a network of nodes on the Ethereum blockchain, “which are clustered more densely in the United States than in any other country,” validated the ETH contributions. They argued that, as a result, “those transactions took place in the United States.”
The SEC’s Beef with ETH Transactions
The SEC’s beef with ETH transactions stems from SEC Chief Gary Gensler’s offensive attack against cryptocurrencies in general. It appears that Gensler looks at Ethereum as security—a financial instrument with monetary value that can be traded. Thus, he considers it under the jurisdiction of the SEC.
Gensler’s claim contradicts a 2018 announcement from the SEC during Yahoo Finance’s All Market Summit: Crypto. At the event, then director of the SEC’s Division of Corporation Finance William Hinman said the commission would not be treating Ether or Bitcoin as securities.
At this stage, it is unclear whether the SEC’s claim would hold up in court or if there is any legal precedent for such a claim. Nevertheless, according to Ethernodes, 42.56% of the 7,807 Ethereum nodes are currently in the U.S.
Aaron Lane, an Australian lawyer and senior research fellow at the RMIT Blockchain Innovation Hub, said in an interview that Ethereum nodes’ distribution is irrelevant to Balina’s case.
“The fact that we’ve got a U.S.-based plaintiff, a U.S.-based defendant, and transactions flowing from the U.S. is what is most relevant here. It doesn’t matter whether the payment was done on Ethereum, Mastercard, or any payment network for that matter,” Lane explained.
He did say the SEC’s claim was interesting, but he added that even if Balina’s lawyers do not contest the issue of jurisdiction, it will not impact future cases for now.
“The defense may concede jurisdiction here, and if they do, it won’t be an issue, and if it’s not a contested issue, then the court won’t say anything about it. Any concern about legal precedent at this stage is premature.”
Twitter Outrage on Claims Regarding ETH Transactions
Gensler’s overall stance against crypto that dragged the issue regarding ETH transactions caused outrage on Twitter. Fueling the rage is the SEC’s history of regulatory approach toward cryptocurrency, which cryptocurrency enthusiasts have previously criticized and labeled “regulation by enforcement.”
Adam Cochran, an information science and business professor, said the SEC would have had an easy win but shot itself in the foot after arguing that “all ETH transactions are ‘in the U.S.’ because of higher node density there.” Cochran also said it was “an absolutely unacceptable overstep that will have to be pushed back against aggressively.”
Balina, the defendant in the case, is ready to face the SEC’s challenge head-on. Around midnight on September 20, he tweeted:
And while he did not comment on the SEC’s jurisdiction claim regarding ETH transactions, he did create a 19-part Twitter thread where he responded to the SEC’s lawsuit by saying the charges were “baseless” and that he “turned down settlement, so they [SEC] have to prove themselves.”
Get more news updates
Get more NFT news updates at Omnimint News. For more information on Omnimint, and details on how to join our community, please follow our Twitter, or subscribe to our Telegram channel for more updates, and please feel free to submit your article.