Appeals Court Sides with SEC, Rejects Crypto Law Firm's Bid for Ether Clarity

2024-08-23 06:49:31

Ethereum Regulation SEC

The “disappointing but expected” outcome brings the SEC no closer to definitive clarification on Ether’s classification. Last updated:

August 22, 2024 22:49 EDT

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Harvey Hunter

Junior Content Creator

Harvey Hunter

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Harvey Hunter is a Junior Content Creator at Cryptonews.com. With a background in Computer Science, IT, and Mathematics, he seamlessly transitioned from tech geek to crypto journalist.

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Last updated:

August 22, 2024 22:49 EDT

Why Trust Cryptonews With over a decade of crypto coverage, Cryptonews delivers authoritative insights you can rely on. Our veteran team of journalists and analysts combines in-depth market knowledge with hands-on testing of blockchain technologies. We maintain strict editorial standards, ensuring factual accuracy and impartial reporting on both established cryptocurrencies and emerging projects. Our longstanding presence in the industry and commitment to quality journalism make Cryptonews a trusted source in the dynamic world of digital assets. Read more about Cryptonews A US appeals court has upheld a California federal judge’s decision to dismiss a pre-emptive lawsuit filed by crypto-focused law firm Hodl Law against the SEC.

The lawsuit sought to compel the US Securities and Exchange Commission (SEC) to clarify its Ethereum (ETH) classification as a security.

Hodl Law’s November 2022 complaint was rejected by the San Diego district court, which found that the firm failed to demonstrate a “realistic danger” of facing SEC enforcement action merely for using the Ethereum blockchain and Ether.

On August 22, the Ninth Circuit Appeals Court panel affirmed this decision.

“Hodl Law’s complaint contains no allegations that the SEC has investigated, prosecuted, or threatened to investigate or prosecute the law firm’s use of Ether or Ethereum,” the three-judge panel wrote in an unpublished opinion.

The Need For SEC Clarity: Is Ethereum a Security?

Hodl Law hoped that the suit would force the SEC’s hand to clarify its stance on Ethereum’s classification. This was part of a broader effort to address enforcement actions against crypto firms, which have implicated numerous cryptocurrencies under securities laws.

“If the SEC determines that transactions involving Ether or the Ethereum network violate the Securities Act, Hodl Law would already be in violation of the law because it currently engages in such transactions as part of its law practice,” the panel wrote.

The appeals court upheld the California court’s decision to dismiss the case, ruling that Hodl Law did not provide sufficient evidence that “allege that either Ether is a security, or that the transaction on the Ethereum network violates securities laws”

The panel emphasized that without proof of “final agency action” by the SEC, Hodl Law’s lawsuit could not proceed.

The panel added the law firm hadn’t identified “any authority that requires the SEC to engage in specific rulemaking or respond to private parties’ requests for guidance” on ETH’s legal classification.

In other words, the SEC is not obligated to provide immediate guidance or rulemaking in response to individual requests from private entities like Hodl Law.

A “Disappointing But Expected” Outcome

In an August 22nd X post, Hodl Law’s senior managing partner Fred Rispoli expressed his discontent with the “disappointing but expected” outcome.

Well, @hodl_law lost in the 9th Circuit today. Disappointing but expected if you caught the oral argument (and thank you, with my entire heart, if you did).

All we wanted was for the court to give us a chance to argue #ETH #Ethereum is not a federal security. The 9th Circuit… pic.twitter.com/KlbQWIb31v

— Fred Rispoli (@freddyriz) August 22, 2024

The SEC has not determined whether ETH and assets on the Ethereum blockchain are securities despite approving spot ETH exchange-traded funds in July.

The ninth circuit panel said it’s possible the SEC “will never decide that Ether or Ethereum is a ‘security’ under the Securities Act.”

Rispoli hit back at the panel’s holding, saying, “This is not how the rule of law is supposed to operate in the United States of America.”

“We have some more avenues to attempt to force the SEC to provide an answer to us,” Rispoli said. “We are not giving up.”

However, there is a glimmer of hope on the horizon. The upcoming US election could significantly influence the future of cryptocurrency regulation, with both major candidates showing more favorable attitudes toward the industry.

Kamala Harris has been reported to adopt a more balanced approach, aiming to address regulatory concerns while supporting innovation.

Meanwhile, Donald Trump has expressed a more enthusiastic stance, advocating for a more embracing and supportive regulatory environment for cryptocurrencies.

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