U.S. Securities and Exchange Commission commissioner Hester Peirce has continued her opposition against the commission’s approach toward regulating the nascent crypto industry.
Following the failure of crypto exchange FTX in November, the Securities and Exchange Commission (SEC) has been aggressively trying to regulate the industry, launching campaigns against big names such as Gemini, Genesis, Kraken, and Coinbase — all while fighting over who gets to control the sector with the Commodities and Futures Trading Commission (CFTC).
While the SEC’s stand toward the industry is rational — the sector has yet to mature, making it prone to crises as well as illicit activities — Peirce argues that the current strategy adopted by the SEC is too hostile, possibly overly limiting growth and development.
Peirce has repeatedly expressed her concerns over the SEC’s current approach, saying that the commission’s current actions are largely motivated by “jurisdictional maximization,” meaning that the SEC aims to grow its mandate instead of actually helping the crypto industry to be more compliant.
“One way to plant a flag is to bring an enforcement action. It says: This is our space,” Peirce said, as quoted by Wired. “We haven’t done our job as a regulator. We have not provided a road to compliance.”
In one of her most recent public dissents made against a proposal to change the definition of an exchange that would increase the SEC’s reach in the industry, she said that the commission was readying itself to “embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology.”
She said the SEC’s tactics of “regulation by enforcement” and “regulation by ambiguity” would further distance industry players from achieving compliance, leaving them waiting for the sure lawsuit. Peirce argued that the SEC’s stance had instead degraded the little trust the industry had in the commission.
How SEC’s approach affects industry leaders
Coinbase is only one of the industry leaders that have been left frustrated by all futile efforts to discuss with regulators the aspects of crypto that do not fit the current frameworks.
In March, Coinbase publicly responded to a Wells notice concerning its unspecified digital assets, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet, issued by the SEC following a “cursory investigation.”
The SEC accused Coinbase of offering unregistered securities through its “crypto asset staking-as-a-service program,” which the exchange denied. In an 18-page document, Coinbase explained that some staking models may qualify as securities offerings and some may not.
Since the core staking model adopted by the firm does not meet the criteria of the Howey test, Coinbase argued that it did not engage in the sale of unregistered securities.
The Wells notice was not a lawsuit, but Coinbase did face one. Earlier in February, Coinbase had a customer class action lawsuit alleging that it sold crypto tokens through unregistered offerings dismissed.
The suit, filed under federal securities law, alleged that the exchange’s position as an “intermediary” made it the “actual seller” of the tokens. The suit further alleged that the exchange engaged in “airdrops” and promoted the tokens by highlighting their “purported value proposition.”
However, Judge Paul Engelmayer of the U.S. District Court of the Southern District of New York ruled that no direct involvement from Coinbase could be found in the transactions.