The SEC filed a federal complaint Monday against crypto celebrity Ian Balina for failing to register a cryptocurrency as security before conducting a 2018 initial coin offering (ICO).
In a possibly unprecedented move hidden in the lawsuit’s 69th line, the SEC today claimed it has the power to prosecute Balina not just because his case involves US transactions, but also because the whole Ethereum network comes under US government jurisdiction.
In its complaint, the agency observed that the ETH delivered to Balina was confirmed by an American network of Ethereum blockchain nodes.
The SEC finds that these transactions occurred in the U.S.
The SEC seems to propose that since more Ethereum validating nodes are in the US than in any other area, all Ethereum transactions should be deemed American.
Etherscan says 45.85% of Ethereum nodes are in the US.
Germany’s second-highest node density is 19%.
If the SEC classifies Ethereum behavior as similar to that of an American securities market, it would claim authority over all activity on the purportedly decentralized Ethereum network.
It would increase the SEC’s oversight over Ethereum, where most NFT and DeFi activity occurs, and crypto in general.
SEC Chair Gary Gensler said last week, after Ethereum’s successful migration to proof-of-stake, that the shift may bring the network closer to the definition of security.
Gensler spoke before the Senate Banking Committee on how “staking” (pledging assets to a crypto network in return for passive benefits) may be regarded as a signal that an asset qualifies as a security under the Howey Test. He did not specify any particular cryptocurrency or network.
Under Gensler, the SEC has not taken an official position on Ethereum, despite prior leadership stating it was “sufficiently decentralized” and not a security.
