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August 23, 2024Appeals Court Upholds Dismissal of Hodl Law’s Lawsuit Against SEC Over Ether Classification
A U.S. appeals court has upheld a California federal judge’s decision to dismiss Hodl Law’s pre-emptive lawsuit against the Securities and Exchange Commission (SEC). The case sought to compel the SEC to clarify its stance on whether Ether (ETH) is classified as a security.
Hodl Law, a crypto-focused legal firm, filed its lawsuit in November 2022 in an attempt to force the SEC to provide clarity on the regulatory status of Ether. The firm argued that uncertainty regarding ETH’s classification could potentially put it at risk of violating securities laws simply by using the Ethereum blockchain.
Court’s Rationale
On August 22, the Ninth Circuit appeals court panel agreed with the lower court’s decision to dismiss the case. The panel found that Hodl Law’s complaint lacked evidence of a “realistic danger” of facing SEC enforcement actions. Key points from the court’s decision include:
Lack of SEC Action: The court noted that there was no evidence that the SEC had investigated or threatened to investigate Hodl Law for its use of Ether or Ethereum.
No “Final Agency Action”: The judges concluded that Hodl Law failed to prove that the SEC had made a final decision regarding Ether’s classification as a security.
No Requirement for Rulemaking: The court also found that the SEC is not legally required to issue specific rulemaking or respond to private parties’ requests for guidance on Ether’s legal status.
Hodl Law’s Response
Fred Rispoli, senior managing partner at Hodl Law, expressed disappointment with the ruling. In an August 22 post on X, he described the decision as “disappointing but expected,” stating that the firm sought a judicial opportunity to argue that ETH is not a federal security. Rispoli criticized the court’s decision, suggesting it undermines the rule of law.
Despite the setback, Rispoli indicated that Hodl Law would explore other avenues to obtain clarity from the SEC. He emphasized that the firm remains committed to challenging the regulator’s stance.
SEC’s Position on Ether
The SEC has yet to definitively classify Ether or assets on the Ethereum blockchain as securities. The regulator’s approach to digital assets remains cautious, as evidenced by its approval of spot ETH exchange-traded funds (ETFs) in July, which adds to the regulatory uncertainty surrounding cryptocurrencies.
The appeals court’s decision underscores the ongoing ambiguity in cryptocurrency regulation. As the SEC continues to scrutinize digital assets, firms like Hodl Law are navigating a complex legal landscape. The outcome of this case may influence how other entities approach regulatory clarity and compliance in the evolving world of cryptocurrency.
