In a striking revelation from documents obtained through Coinbase's Freedom of Information Act (FOIA) efforts, the New York Attorney General's Office asked the Securities and Exchange Commission (SEC) in 2023 to declare Ether (ETH) a security in support of its lawsuit against crypto exchange KuCoin. The request, made during the tenure of former SEC Chair Gary Gensler, was ultimately declined.
The episode reveals not only persistent regulatory friction over how to classify digital assets like ETH, but also the pragmatic legal boundaries and political shift away from overreaching enforcement—a shift that's increasingly evident under the current SEC.
The Request: A Strategic but Overreaching Play
The NY AG's office, through Shamiso Maswoswe of the Investor Protection Bureau, encouraged the SEC to file an amicus brief asserting ETH is a security. The agency demurred—likely recognizing the uphill legal battle such a position would entail.
At the time, Gary Gensler may have been receptive in theory. He had previously hinted that most tokens, potentially including ETH post-Merge, could fall under the securities umbrella. But Gensler had bigger fish to fry—including the headline-grabbing actions against Coinbase and Binance, and the ongoing Ripple litigation. Picking a jurisdictional fight over Ethereum, the second-largest crypto asset by market cap, would have risked destabilizing both legal precedent and market infrastructure.
Now, with Paul Atkins at the helm and a Trump-aligned administration setting a more crypto-accommodating tone, the current SEC appears to want nothing to do with that fight. And that's the right decision, legally and politically.
ETH Fails the Howey Test—Especially on “Common Enterprise”
From a doctrinal standpoint, Ether should not be deemed a security. Applying the Howey test:
“An investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others.”
The "common enterprise" prong is ETH's legal firewall.
- There is no centralized promoter.
- No pooling of funds or investor profits.
- No core group controlling price appreciation.
Ethereum operates on an open-source, decentralized protocol, maintained by a dispersed global community of developers, node operators, and users. There is no central managerial effort on which investors rely. Unlike an ICO or traditional equity raise, ETH is not sold as part of a coordinated investment contract. Courts have routinely looked to vertical and horizontal commonality to find a common enterprise—Ethereum's structure fails both tests.
Why the SEC Is Backing Away
Today's SEC has more pressing priorities. It continues to refine its digital asset enforcement strategy—focusing on staking-as-a-service, custodial arrangements, and outright fraud—while carefully avoiding a direct ruling on Ethereum's status.
That's no accident. Taking the position that ETH is a security would:
- Conflict with CFTC's public view of ETH as a commodity.
- Trigger marketwide compliance chaos, affecting exchanges, custodians, and funds.
- Undermine the SEC's credibility if challenged in court—and lost.
Conclusion: ETH Is Not a Security—and That Battle May Be Over
Despite lingering rhetorical skirmishes and state-level power plays, the regulatory tide is moving away from classifying ETH as a security. Courts have shown reluctance to stretch Howey to decentralized networks, and the SEC—under new leadership—is wisely stepping back from a fight that is both doctrinally weak and politically radioactive.
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