I recently had the distinct pleasure and honor of hosting a fireside chat with U.S. Securities and Exchange (SEC) Commissioner Hester Peirce for a special podcast hosted by Crypto Connect.
“The SEC is an independent regulatory agency, which makes it a bit unusual,” she said. “It’s not like your typical executive branch agency that has one head. There are five people at the helm of the agency. I’m one of those five, I’m not the chairman. The chairman gets to set the agenda and the 4,500 or so staff report to the chairman as opposed to all of us commissioners. So, as you can imagine, the chairman has an outsized influence on what the agency does, on the decisions it makes, on how it spends its resources, but all of the rest of us have to vote on any rulemaking and any enforcement action.”
To me, that is an important distinction to make – when a rule is created or there is an enforcement, that means a majority of the commissioners have voted in favor of that action but that doesn’t mean all have agreed with the outcome. Since chairman Gary Gensler sets the agenda, the rule or enforcement action may not be something the other commissioners would have pursued on their own or even agree with.
While most of the SEC’s regulatory jurisdiction is not related to the cryptocurrency industry, since 2017 there has recently been an increase in cases brought against the cryptocurrency space and companies.
The Commissioner and I also discussed the various rejected spot bitcoin ETF applications. When I asked Commissioner Peirce about the rationale behind the SEC’s rejections of spot bitcoin ETF applications, she said, “I can’t get my arms around what our rationale is in looking at these, but each one will be considered on its own facts and circumstances.”
Commissioner Peirce said it’s rare for people or companies to come in front of the SEC without already having years of securities law experience, so the topic of digital assets can be challenging for both the SEC and the crypto company engaging with them.
With my experience in the industry, I come across this issue daily. I believe there should be cooperation on both sides, from the SEC and the people involved in the crypto space. And Commissioner Peirce’s views seem to align with mine on this.
“When something new comes along, we should all sit down and say ‘OK, how does this new thing fit in with the existing laws,’ and I think that’s where the breakdown has been,” the commissioner said. “We have just put our hands over our ears and said, ‘the laws are there, the laws are timeless, the laws are evergreen, they don’t need to change.’ And yes, that’s true, but Congress gave us the ability to administer those laws to provide exemptions, not just a blanket exemption that says you can do whatever you want, but an exemption that says if you meet these conditions, you can do this. And we’re not using that authority.”
In our conversation, we also discussed the fact that many people in the crypto industry believe the SEC unfairly targets the space through enforcement actions and unclear rules and registration processes. Commissioner Peirce said she would like to see more of a distinction made between what is labeled actual fraud and what is just a failure of a crypto company to register.
Commissioner Peirce also pointed out that the role of the SEC is to protect investors, facilitate capital formation, and foster fair, orderly and efficient markets. The SEC is not a merit based regulatory and their role is not to tell the general public how they can invest their money.
“That role was given to us with the idea that we would not be a merit regulator; we don’t have the authority to be a merit regulator; to make calls about where people should invest their money; but rather to empower them so that they can make decisions about how to invest their money,” she said. “That’s a really powerful role. We can stand in between someone who’s trying to raise money and someone who’s trying to invest money and make sure that the information is flowing from the person trying to raise money to the person who’s trying to invest, and that information is accurate. But not to say ‘hey, investor, we think that you should instead invest your money in this company,’ that’s not our role.”
Commissioner Peirce suggested having more transparency and disclosures from cryptocurrency projects would be a way to help maintain the SEC’s role, without overstepping. I agree that if everyday people were able to have more disclosures from cryptocurrency projects, it would proactively protect consumers and ensure that bad actors are caught sooner, without the need for delayed and costly enforcement actions.
Crypto Connect, which I founded in 2021, is a nonprofit, decentralized organization dedicated to sponsoring educational and networking opportunities for the cryptocurrency industry. Crypto Connect hosts meetups, webinars and educational events for individuals seeking community and connections in the industry.