The Securities and Exchange Commission (SEC) of the United States has made an unprecedented claim that Ethereum transactions occur in the United States because Ethereum nodes are “clustered more densely” in the United States than in any other country.
The SEC argument is part of a lawsuit filed on September 19 against the YouTuber Ian Balina
The SEC argument is contained in a lawsuit filed on September 19 against crypto researcher and YouTuber Ian Balina, which alleged, among other things, that Balina conducted an unregistered offering of Sparkster (SPRK) tokens when he formed an investing pool on Telegram in 2018.
According to the SEC, when US-based investors joined Balina’s investing pool, their Ether (ETH) contributions were validated by a network of Ethereum blockchain nodes “clustered more densely in the United States than in any other country.”
As a result, “those transactions took place in the United States,” according to the commission
It is unclear whether such a claim will be upheld in court or if any legal precedent is at stake.
However, according to Ethernodes, 42.56% of the 7807 Ethereum nodes are currently located in the United States.
Aaron Lane, an Australian lawyer and senior research fellow at the RMIT Blockchain Innovation Hub, told Cointelegraph that the distribution of Ethereum nodes is mainly irrelevant to the case at hand, explaining:
“The fact that we’ve got a U.S.-based plaintiff, a U.S.-based defendant, and transactions flowing from the U.S. is most relevant here. It doesn’t matter whether the payment was made on Ethereum, Mastercard, or any payment network.”
Lane stated that, while the SEC’s claim was intriguing, he added that even if Balina’s lawyers do not contest the issue of jurisdiction, it will have no effect on future cases for the time being:
“The defense may concede jurisdiction here, and if they do, it won’t be an issue, and if it’s not a contested issue then the court won’t say anything about it. So any concern about legal precedent at this stage is premature.”
The SEC has previously been chastised for its regulatory approach to cryptocurrency, dubbed “regulation by enforcement” by some.
Shortly after Ethereum switched to proof-of-stake on September 15, SEC Chair Gary Gensler hinted that Ether-based staking could also trigger U.S. securities laws.
In a 19-part Twitter thread, Balina responded to the lawsuit by saying that the charges were “baseless” and that he “turned down the settlement, so they [SEC] have to prove themselves.”
Balina did not respond to the SEC’s claim that the U.S. should be granted jurisdiction over Ethereum-based transactions due to the high concentration of nodes in the U.S.
Sparkster and its CEO, Sajjad Daya, recently settled their case with the SEC on September 19, agreeing to pay back $35 million to “harmed investors” following its initial coin offering (ICO) in 2018.