SEC sues Consensys over Metamask. What does this mean for users?

In a lawsuit on Friday, the Securities & Exchange Commission (SEC) accused Consensys of using its Metamask wallet for the sale of unregistered securities and to act as an unregistered broker.

SEC accuses Consensys of securities law violation

The SEC's lawsuit claimed that Metamask's swapping and staking features made it an unregistered broker, thus violating securities laws.

"By allegedly collecting hundreds of millions of dollars in fees as an unregistered broker and engaging in the unregistered offer and sale of tens of thousands of securities, Consensys inserted itself squarely into the U.S. securities markets while depriving investors of the protections afforded by the federal securities laws," said Gurbir S. Grewal, SEC's Division of Enforcement director.

The SEC alleged that Consensys sold unregistered securities to users via Lido and Rocket Pool. The agency said that since the protocols' services are sold as an investment contract, they qualify as securities.

SEC also argued that MATIC, MANA, CHZ, SAND and LUNA tokens are unregistered securities, and since they were available on Metamask, Consensys acted as an unregistered broker.

Whether Metamask temporarily takes custody of the assets during the swap/staking process may play a key role in how the suit pans out:

SEC earlier issued a Wells notice to Consensys in April, hinting at an intention to take legal action against the company.

Consensys took the initiative and sued the SEC, accusing the regulator of overstepping its boundaries in trying to regulate Ethereum as a security while stating that its Metamask swap and staking features don't fall under the SEC's oversight. While the SEC dropped its Ethereum investigation, it went ahead and sued Consensys.

The lawsuit against Consensys adds to the ongoing legal battles between regulatory agencies and major players in the cryptocurrency space. It may also set a tone of fear, uncertainty and doubt (FUD) among Metamask users as it's the largest ERC-20 token wallet.

Coinbase exchange was also recently involved in a similar case with the SEC after being charged with functioning as an unregulated broker via its Coinbase wallet. However, the case was dismissed in March after the judge stated that SEC's accusations "fall short of demonstrating that Coinbase acts as a 'broker' by making Wallet available to customers."

In a related development, Coinbase took legal action against the SEC on Thursday, alleging the agency refused to release information about crypto regulations in accordance with the Freedom of Information Act (FOIA).