Home Ethereum SEC lawsuit claims jurisdiction because ETH nodes are ‘clustered’ in the US

SEC lawsuit claims jurisdiction because ETH nodes are ‘clustered’ in the US

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SEC lawsuit claims jurisdiction because ETH nodes are ‘clustered’ in the US

The United States Securities Exchange Commission (SEC) has made an unprecedented assertion that Ethereum transactions take place in the United States because Ethereum nodes are “clustered more densely” in the United States than in any other country.

The SEC’s argument is found in a Sept. 19 lawsuit against crypto researcher and YouTuber Ian Balina, which allegedamong numerous other complaints, that Balina conducted an unregistered offering of Sparkster tokens (SPRK) when he formed an investment pool on Telegram in 2018.

The SEC claims that at the time US-based investors were participating in Balina’s investment pool, Ether (ETH) contributions were validated by a network of nodes on the Ethereum blockchain, “which are clustered more densely in the United States than in any other country.”

The SEC argued that as a result, “these transactions took place in the United States.”

At this point, it is unclear whether such a claim will hold up in court or if there is any legal precedent at play. However, currently 42.56% of the 7807 Ethereum nodes are currently located in the United States, according to Ethernodes.

Speaking to Cointelegraph, Aaron Lane, an Australian lawyer and senior researcher at the RMIT Blockchain Innovation Hub, said the distribution of Ethereum nodes is largely irrelevant to the current case, explaining:

“The fact that we have a plaintiff based in the United States, a defendant based in the United States and transactions originating from the United States is what is most relevant here. It doesn’t matter if the payment was made on Ethereum, Mastercard or any other payment network for that matter.

Lane said that while the SEC’s request was interesting, he added that even if Balina’s attorneys do not dispute the jurisdictional issue, it will have no impact on future cases at this time:

“The defense can concede jurisdiction here, and if they do, that won’t be an issue, and if it’s not a disputed issue, the court won’t say anything about it. Any concerns about legal precedent at this stage are premature.

Related: 3 cloud providers accounting for more than two-thirds of Ethereum nodes: Data

The SEC has previously been criticized for its regulatory approach to cryptoreferred to by some as “regulation by enforcement”.

SEC Chairman Gary Gensler recently hinted that Ether-based staking could also trigger US securities laws shortly after Ethereum transitioned to proof of participation on September 15.

Responding to the lawsuit, Balina said in a 19-part Twitter thread that the charges were “without merit” and that he “refused the settlement so that they [SEC] must prove themselves.

Balina did not comment on the SEC’s assertion that the United States should have jurisdiction over Ethereum-based transactions due to the high distribution of nodes located in the United States.

Balina’s accusations come as Sparkster and its CEO, Sajjad Daya, recently colonized his case with the SEC on Sept. 19, agreeing to repay $35 million to “aggrieved investors” after his initial coin offering (ICO) in 2018.