The U.S. Securities and Exchange Commission (SEC) has added another victory to its list. This time, a federal appeals court backed a California judge’s decision to dismiss a lawsuit from Hodl Law, a firm focused on crypto.
Hodl Law wanted the SEC to clarify whether Ether (ETH) and the Ethereum network were considered securities. The court, however, wasn’t buying it.
The law firm filed its complaint in November 2022, hoping to force the SEC to take a stance on ETH. They argued that the SEC’s vagueness on Ethereum’s status was putting them at risk of enforcement action.
The appeals court’s three-judge panel backed the lower court’s July 2023 dismissal of the case. The judges believed that Hodl Law didn’t show any “realistic danger” of facing SEC action just for using Ethereum. They said:
“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 court also pointed out that there was no evidence the SEC had made any final decisions about whether Ether was a security.
Hodl Law wanted to force the SEC’s hand, wanting clarity on whether their use of ETH in their law practice would put them in violation of federal securities laws.
They hoped the court would push the SEC to declare its position, especially after the regulator had gone after other crypto firms, dragging dozens of cryptocurrencies into the securities law arena. The panel added that:
“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.”
After the court handed down its decision, Hodl Law’s senior managing partner Fred Rispoli took to social media to express his disappointment. He acknowledged the court’s decision, calling it “disappointing but expected.”
He explained that the court upheld the district court’s ruling that Hodl Law didn’t have the standing to sue the SEC for an answer on whether ETH was a federal security. He added, also, that:
“So everyone knows, the SEC’s current agency position is that it has not made a determination on whether Ether and the Ethereum Network is a security. Approval of the Ethereum ETFs does not change that. Please keep this in my mind.”
He added that this is “not how the rule of law is supposed to operate in the United States of America.” Fred said that the firm isn’t giving up, despite the setback.
They still plan to push for an answer from the SEC, though it seems that path just got a lot more complicated.
