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

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The Securities Exchange Commission (SEC) has made an unprecedented claim that Ethereum transactions take place in the United States, as ETH nodes in the United States are “closer clustered” than any other country.

The SEC’s argument can be found in a September 19 lawsuit against crypto researcher and YouTuber Ian Balina, who, among many other complaints, alleged that Balina made an unregistered offer of Sparkster (SPRK) tokens when he entered an investment pool in 2018. on Telegram.

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

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

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At this stage, it is unclear whether such a claim will stand up in court, or whether a legal precedent is at stake. However, according to Ethernodes, 42.56% of the 7807 Ethereum nodes are currently located in the US.

dr. Aaron Lane, an Australian lawyer and Senior Research Fellow at the RMIT Blockchain Innovation Hub, told TBEN that the distribution of Ethereum nodes is largely irrelevant to the present case, explaining:

“The fact that we have a US-based plaintiff, US-based defendant and transactions flowing out of the US is most relevant here. It doesn’t matter if the payment was made on Ethereum, Mastercard or any payment network.”

Lane said that while the SEC’s claim was interesting, he added that even if Balina’s attorneys don’t dispute the jurisdiction issue, it won’t affect future cases for now:

“The defense can grant jurisdiction here, and if they do, it’s no problem, and if it’s not a disputed issue, the court won’t say anything about it. Any concern about a legal precedent at this stage is premature.”

Related: 3 cloud providers that account for more than two-thirds of Ethereum nodes: data

The SEC has previously been criticized for its regulatory approach to crypto, which has been labeled by some as “regulation by enforcement”.

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

Commenting on the lawsuit, Balina said in a 19-part Twitter thread that the charges were “baseless” and that he “rejected the settlement so that they [SEC] have to prove themselves.”

Balina did not comment on the SEC’s claim that the US should be given jurisdiction for Ethereum-based transactions due to the wide spread of nodes in the US

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Balina’s charges come as Sparkster and its CEO, Sajjad Daya recently settled his case with the SEC on September 19, after agreeing to pay back $35 million to “damaged investors” after the ICO in 2018.