Texas judge dismisses Consensys lawsuit against SEC

Consensys is very disappointed with the ruling but plans to continue fighting the SEC’s allegations. Meanwhile, the SEC is requesting more time for document production in its lawsuit against Coinbase, and a U.S. bankruptcy judge has approved Terraform Labs’ bankruptcy plan. Prosecutors are also arguing for the conviction of Mango Markets exploiter Avraham Eisenberg, who faces a serious prison sentence for fraud and market manipulation.

Consensys lawsuit against the SEC is withdrawn

A federal judge in Texas decided dismiss The lawsuit filed by blockchain development company Consensys against the U.S. Securities and Exchange Commission (SEC) and its five commissioners, including Chairman Gary Gensler. It started in Apriland requested a court declaration that Ethereum (ETH) It is not a security and that Consensys’ ETH sales do not involve securities. It also wanted to prevent the SEC from taking enforcement action regarding aspects of its MetaMask wallet software, which the regulator ended up doing. In June.

Consensys argued that the SEC opened an investigation into Ethereum to regulate it as a security and issued the company a Wells Notice regarding MetaMask’s swap and staking services. However, in a Sept. 19 decision, Judge Reed O’Connor dismissed Consensys’ claims related to MetaMask and stated that the enforcement actions do not qualify as final agency actions. He also noted that the Wells Notice was not the end of the SEC’s decision-making process and did not actually establish any legal obligations or consequences for Consensys.

The judge also dismissed claims regarding the SEC’s investigation into Ethereum after the regulator’s approval ETH ETFs (ETF) in May. Consensys acknowledged in July that the SEC He abandoned his research on Ethereum, after which the court acknowledged that Consensys has already obtained the relief it requested in that matter.

In response, Consensys expressed disappointment at the court’s procedural dismissal of the lawsuit, stating that the merits of its claims had not been addressed at all. The company noted that the SEC dropped its investigation into Ethereum 2.0 only after the litigation began.

Consensys also confirmed its intention to continue challenging the SEC’s lawsuit over its MetaMask software, in which the agency alleges that it acted as an unregistered broker and offered unregistered securities through MetaMask Swaps. The company is now expected to file a motion to dismiss the case.

SEC asks court for more time for Coinbase lawsuit

Despite the dismissal of the lawsuit against Consensys, the SEC still has plenty of work to do fighting other legal battles. SEC lawyers have requested a judicial extension until February 2025 to produce “hundreds of thousands of documents” in discovery proceedings involving cryptocurrency exchanges Coinbase.

In a filing on September 18 in the United States District Court for the Southern District of New York, the SEC requested a four-month extension to complete its document productionThe original date was set for October 18. This request was made after Coinbase… partial victory in a motion to compel discovery requiring the SEC to provide information about its application of securities laws to the tokens.

The SEC filing indicated it was reviewing at least 133,582 unique documents and needed the extension to fully comply with the court’s order. If Judge Katherine Failla grants the request, the SEC will have until Feb. 18 to complete fact discovery. Fact discovery and expert testimony will potentially extend to April 22. A jury trial in the case likely won’t be held until 2025.

Not only does the regulator have a lot of legal work to do, but US lawmakers are also debating what role the commission should play in regulating digital assets. The House Subcommittee on Digital Assets, Financial Technology, and Inclusion met on September 18 to discuss the role the commission should play in regulating digital assets. examine If the SEC, under his chairmanship Gary Genslerhas taken a “more politicized approach” to cryptocurrency regulation.

Despite having so much to do, the SEC’s lawsuit against Coinbase is part of a much larger plan to regulate the cryptocurrency industry. The commission’s main allegation is that exchanges offered and sold tokens as unregistered securities. In 2024, a judge ordered Ripple Labs to pay the SEC $125 million after a lengthy legal battle, and Terraform Labs settled with the regulator for more than $4 billion. Some of the enforcement cases that are still ongoing involve major companies such as Binance and Kraken.

Judge approves Terraform Labs bankruptcy plan

In other legal news, a U.S. bankruptcy judge has approved the liquidation of Terraform Labs as part of the company’s bankruptcy plan. According to a Reuters report On September 19, Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware approved the plan, which Terraform filed for Chapter 11 protection In January, the liabilities and assets were estimated to be between $100 million and $500 million. Judge Shannon described the plan as a “very welcome alternative” to protracted litigation over investors’ losses.

Terraform’s bankruptcy came after the SEC filed a lawsuit against the platform and its founder, Do Kwonin February 2023. Terraform’s collapse in 2022 was linked to the instability of its algorithmic stablecoin, UST, and its founders’ questionable claims about blockchain use cases. This failure set off a chain reaction in the cryptocurrency industry, causing companies like BlockFi, FTX, and Celsius He also declared bankruptcy that same year.

In April 2024, a The judge ruled that Terraform and Kwon defrauded investors and ordered them to pay around $4.5 billion in fines and civil penalties to the SEC. During the Sept. 19 hearing, Terraform proposed that it could pay between $185 million and $442 million as part of its liquidation plan, though its total losses are still difficult to quantify. The reality is that many investors may not receive full compensation.

Both the SEC and bankruptcy proceedings have moved forward without Kwon, who was arrested in Montenegro in 2023 for using falsified travel documents. After serving four months in prison, Kwon is now awaiting sentencing. extradition either to the United States or South Korea, where he faces multiple criminal charges.

Prosecutors defend conviction of Mango Markets exploiter

Meanwhile, prosecutors for the U.S. Southern District of New York (SDNY) filed a motion opposing Mango markets operate By Avraham Eisenberg Request for acquittal or a new trial. According to court documents filed on Sept. 18, the prosecution argued that the jury correctly convicted Eisenberg based on the extensive evidence against him, including the fact that Mango perpetual swaps are subject to the Commodity Exchange Act.

Federal prosecutors rejected Eisenberg’s defense, which claimed that fraud charges were not applicable because he had not manipulated the market price of the underlying asset. They noted that the jury had clear instructions about price manipulation and argued that fraud was a central element of Eisenberg’s scheme.

Prosecutors also dismissed a jurisdictional challenge from Eisenberg’s legal team, saying the Southern District of New York had authority to try the case because many Mango Markets employees were based in Manhattan.

The Mango Markets exploit occurred on October 11, 2022, when $100 million was withdrawn from the platform. This caused the Mango (MNGO) token to lose 52% of its value in just 24 hours.

Eisenberg later admitted to being behind the exploit, but claimed it was a “legal open market action.” However, in December 2022, he was arrested in Puerto Rico and accused of fraud and market manipulation. A jury Eisenberg was found guilty in April 2024, and now faces up to 20 years in prison if sentenced to the maximum penalty.