SEC Makes Bizarre Claim About U.S. Jurisdiction Over Ethereum in Court Filing

New court documents from the Securities and Exchange Commission show that the regulator is claiming that, due to the fact that more Ethereum nodes are located in the U.S. than in any other country, Ethereum transactions should be considered as “taking place” within the U.S.

Ian Balina Charged for Undisclosed Promotion

The Securities and Exchange Commission (SEC) filed a lawsuit today against crypto YouTuber Ian Balina for allegedly failing to disclose the compensation he received for promoting Sparkster and its token, SPRK. The SEC is also charging Balina for not registering with the regulator before selling some of his own SPRK tokens in his Telegram investing pool.

Sparkster held its initial coin offering (ICO) for SPRK between April and July 2018. Built on Ethereum, Sparkster was pitched as a decentralized cloud network; the project has yet to deliver a product and has been faced with a class-action lawsuit (which Balina joined). According to the SEC’s filing, the company (based in the Cayman Islands) is guilty of raising more than $30 million from investors in the United States and abroad by selling them unregistered securities.

But SEC lawyers made the unprecedented claim in their court filing that Ethereum transactions should be considered as originating from the United States, despite the decentralized nature of the blockchain.

“At that point, [SPRK investors’] 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. As a result, those transactions took place in the United States.”

According to ethernodes.org, Ethereum is currently being operated by over 7,771 nodes. 42.33% of them are based in the U.S, 11.60% in Germany, 4.55% in Singapore, and 4.54% in France, with the rest being distributed across 72 different nations.

The SEC and Crypto

While the U.S. regulator has indicated that Bitcoin should be treated as a commodity and fall under the supervision of the Commodity Futures Trading Commission (CFTC), SEC chair Gary Gensler has repeatedly reiterated his belief that most crypto tokens should be considered securities.

The SEC announced in July that it was bringing nine lawsuits against nine different ICO-era crypto projects for selling unregistered securities; the regulatory agency is also now reportedly investigating leading U.S. crypto exchanges, including Coinbase and Binance, for listing these tokens. Gensler has also stated that he could see “no difference” between crypto exchanges and…