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Hester Peirce Says SEC Enforcement is Not the Way to Provide Crypto Clarity
Forkast | Michelle Lim | Jan 9, 2020
In her first public remarks since the SEC’s lawsuit against Ripple and exclusive interview with Forkast.News Editor-in-Chief Angie Lau, SEC commissioner and “Crypto Mom” Hester Peirce says the SEC can do better on clarity and that enforcement isn’t always the best way to provide guidance
U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce said the SEC could do better on clarity on regulation and that enforcement isn’t always the best way to provide guidance. Peirce made her first public remarks since the SEC’s lawsuit against Ripple in an exclusive interview with Forkast.News Editor-in-Chief Angie Lau.
In December last year, the SEC filed a lawsuit against cryptocurrency platform Ripple Labs Inc., its CEO Brad Garlinghouse and Chairman Chris Larsen for allegedly raising over US$1.3 billion through the sale of digital assets known as XRP in an unregistered securities offering. The lawsuit also said that Larsen and Garlinghouse “effected personal unregistered sales of XRP totaling approximately US$600 million.”
See: Ripple CEO Warns SEC May Sue Over XRP Sale
“I don’t want to speak to any particular cryptocurrency, whether it’s in litigation with us or not in litigation with us. But I think everyone has to look at the facts and circumstances,” said Peirce.
Peirce declined to comment specifically on the Ripple lawsuit given the ongoing litigation, and expressed that her views were her own and not necessarily those of the SEC or her fellow commissioners.
The SEC’s enforcement action over Ripple has led to heightened concerns in the crypto industry over the lack of regulatory clarity, with Ripple’s CEO saying, “We’ve moved from lack of regulatory clarity to regulatory chaos in the U.S.” in a Twitter thread on some of the questions surrounding the SEC lawsuit.
Is XRP a security or not?
A central question has been whether XRP is a currency or security. XRP was determined to be currency by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) as a digital currency in 2015, but the SEC’s lawsuit is at odds with that definition.
On the apparent misalignment among U.S. agencies causing confusion in the industry, Peirce said that each agency had its own rulebook to follow.
“I think that’s not only a problem with respect to digital assets, it’s actually a broader problem because we have this very open-ended category called an ‘investment contract’,” said Peirce.
An investment contract is defined by the SEC under the Howey Test as an investment of money in a common enterprise with a reasonable expectation of profits to be made through the work of others. According to Peirce, it is designed to capture anything that looks like a security and acts like a security, but might not be called a stock or a bond. “So something might be characterized as one thing by another agency, yet still be a security under our rules, and that can be frustrating for people,” said Peirce.
“That’s why I have called for more clarity, because I actually think it can be difficult to determine whether something fits within the security bucket or not, and we could do more to provide some guideposts for what that would be,” she added.
Guidance through clarity on guidelines instead of enforcement
On the direction of crypto regulations in 2021, Peirce said, “a lot is going to depend on who the chairman is under President Biden, and that will help determine the direction that the Commission goes on a lot of issues, but cryptocurrency being one of them.”
See: The four contenders to be Joe Biden’s SEC chair
Acknowledging that “the SEC hasn’t done a fantastic job in getting out in front and setting clear lines for crypto and other countries have been much faster to do that,” Peirce highlighted that the SEC was taking steps to provide greater regulatory clarity, such as the recent call for feedback on the custody of digital asset securities by broker-dealers.
“Enforcement actions can indeed provide clarity, but it’s not the right way to do it from my perspective,” she said. “We want to provide people clear guidelines ahead of time and then they can figure out how they can do something so that it is legal.”
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