Appeal Court Dismisses Crypto-focused Hodl Law’s Ether Classification Case Against SEC

The United States Securities and Exchanges Commission (SEC) has landed another victory after a federal appeals court supported a California Judge's dismissal of Crypto Hodl Law's case.

In November 2022, the crypto-focused law firm sued the SEC, claiming it could face an SEC lawsuit for using Ethereum. It demanded that the court compel the regulator to clarify its classification of Ether.

However, the California federal court dismissed the case, tagging it as preemptive and lacking substance. The latest appeal court ruling marks the SEC's second victory in the two-year legal battle.

Crypto-Focused Hodl Law Vs. SEC Legal Tussle

Hodl Law's complaint against the SEC in 2022 aimed to compel the regulator to determine whether Ether is a security. The law firm argued before a California judge that the SEC's lack of definition of Ether's regulatory status poses a risk of an enforcement action.

This suit stemmed from the SEC's enforcement actions against multiple crypto firms for violating securities laws.

US District Judge James Lorenz granted the SEC's motion to dismiss the law firm's pre-emptive suit against the SEC. The judge found that Hodl Law did not sufficiently assert a case under the firm prediction rule."

The law firm contested the California judge's decision at the Ninth Circuit Court of Appeals. During one of the court proceedings, the SEC told the 9th Circuit that Hodl Law can't challenge its enforcement policy based on concerns of non-existing dangers.

On August 22, the appeals court's three-judge panel upheld Judge Lorenz's decision to dismiss the case. The judges said the complaint showed no realistic danger of Hodl Law facing enforcement action for securities law violations by using Ethereum or its token Ether.

It further stated that Hodl's complaint lacks proof that the SEC has threatened to investigate or prosecute the law firm.

In addition, If the SEC determines that transactions involving Ether or the Ethereum network violate the Securities Act, Hodl Law would already be in violation of the law because it currently engages in such transactions as part of its law practice," the panel wrote.

Therefore, the panel dismissed the case after concluding that Hodl Law lacks proof that the SEC carried out the final agency action." It also said Hodl didn't identify any authority that mandates the SEC to respond to private parties or engage in specific rulemaking.

Hodl Law Reacts

senior partner at Hodl, Fred Rispoli, reacted to the August 22 appeals court ruling. In a tweet, Rispoli wrote that while the court's decision was disappointing, they had expected it.

Well, @hodl_law lost in the 9th Circuit today. Disappointing but expected if you caught the oral argument (and thank you, with my entire heart, if you did).

All we wanted was for the court to give us a chance to argue #ETH #Ethereum is not a federal security. The 9th Circuit... pic.twitter.com/KlbQWIb31v

- Fred Rispoli (@freddyriz) August 22, 2024

He said their sole aim was to get an opportunity to argue that Ethereum is not a federal security.Rispoli also mentioned that despite approving ETH spot ETFs, the SEC has failed to determine whether Ether is a security.

Moreover, the appeal court's decision suggests the SEC might never decide whether Ethereum or Ether is subject to the Securities Act.

Fred Rispoli contests the panel's decision, saying it is not how the US rule of law should operate. He also noted that his law firm will not give up. Instead, they will explore other avenues to force the SEC to take a stance.

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