The Securities and Exchange Commission (SEC), led by Gary Gensler, initiated an investigation into Ethereum's classification as a security last year, as revealed in a court filing by Consensys on April 29.

The filing disclosed that Gurbir Grewal, Director of the Division of Enforcement, authorized the Formal Order of Investigation regarding 'Ethereum 2.0' in March 2023. This order empowered SEC staff to probe and issue subpoenas to individuals and entities involved in Ethereum transactions.

It stated:

"The Formal Order is based on the SEC's information indicating potential offers and sales, dating back to at least 2018, of certain securities, including ETH, without a registration statement in effect and without exemption."

Following this, the SEC has subpoenaed numerous individuals and entities with Ethereum investments, including Consensys.

This disclosure came shortly after Consensys filed a lawsuit against the SEC on April 25. The company argued that the SEC's attempt to classify Ethereum as a security went beyond its regulatory mandate, warning of potential negative impacts on innovation and Ethereum's decentralized ecosystem.

Ethereum's Regulatory Status

The classification of Ethereum has been a recurring concern for the SEC.

In 2018, Gensler, in a lecture at the Massachusetts Institute of Technology, indicated that ETH was not viewed as a security.

However, Gensler's position appears to have evolved, particularly following Ethereum's shift to proof of stake. Despite this, he has refrained from providing a definitive stance on Ethereum's classification despite inquiries from various stakeholders, including members of Congress.

While Gensler has not publicly addressed the matter, proponents in the crypto community have cited statements from former SEC officials like Bill Hinman and legal filings from regulatory bodies like the Commodities Futures Trading Commission to argue against Ethereum's classification as a security.