Hester Peirce of the Securities and Exchange Commission publicly rebuked her agency’s crypto enforcement, calling it “paternalistic and lazy” and asking if a “hostile” regulator is the best solution for the industry.
Peirce, who was appointed to her post as commissioner by President Donald Trump in 2018, wrote in a statement on Thursday that she disagreed with the SEC’s assertion that the shutdown of crypto exchange Kraken’s staking program was a “win for investors.”
The SEC action against Kraken, which was settled without an admission or denial of wrongdoing, alleged that the exchange engaged in the unregistered offer and sale of securities through its crypto lending platform. Peirce said that’s not the primary issue.
“Whether one agrees with that analysis or not, a more fundamental question is whether SEC registration would have been possible,” Peirce wrote. “In the current climate, crypto-related offerings are not making it through the SEC’s registration pipeline.”
Without directly mentioning SEC chair Gary Gensler, Peirce took aim at what Coinbase CEO Brian Armstrong described on Wednesday night as the SEC’s “regulation by enforcement.”
“Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating,” Peirce wrote.
Gensler, lawmakers and the White House have called for more robust regulation of the cryptocurrency industry. But Gensler and the SEC Enforcement division under his control have moved far more aggressively than the Department of Justice or policymakers to tamp down on the crypto industry.
In a press release announcing the Kraken settlement, SEC enforcement director Gurbir Grewal said that the action was a step to curtail companies whose “investors lack the disclosures they deserve and are harmed when they don’t receive them.”
Peirce, who dissented on the enforcement action, indirectly disputed the premise of that assertion.
Hester Peirce,
Commissioner of the US Securities and Exchange Commission (SEC), speaks during the DC Blockchain Summit in Washington, D.C., on Tuesday, May 24, 2022
“Most concerning, though, is that our solution to a failure to register violation is to shut down entirely a program that has served people well,” she wrote. “However, whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear.”
Focus Points
- EC commissioner Hester Peirce issued a public dissent to her agency’s enforcement action against crypto exchange Kraken.
- Peirce said that the current regulatory environment made it impossible for crypto-related offerings to even gain approval.
- Peirce’s dissent comes as SEC chair Gary Gensler continues to crack down on crypto-related offerings and companies.
In 2015, Peirce was chosen during the Obama administration to fill a Republican seat at the U.S. Securities and Exchange Commission. Democrats on the Senate Banking Committee attempted to block her nomination because she declined to fully commit to requiring corporations to publicly disclose political donations.
Washington D.C., July 12, 2023 —
The Securities and Exchange Commission today announced an award of more than $9 million to a whistleblower whose significant and detailed information and assistance led to a successful SEC enforcement action.
After repeatedly internally reporting the concerns, the whistleblower alerted SEC’s Enforcement Division to the conduct, prompting the opening of the investigation. In addition, the whistleblower provided substantial and ongoing cooperation.
“The whistleblower in this case provided critical information and continuing assistance that helped the agency recover millions of dollars for harmed investors,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower.
Payments to whistleblowers are made out of an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million.
As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity.
For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.
