SEC ‘crypto mom’ Hester Peirce criticizes agency’s $10 million Poloniex fine
One of the cryptocurrency industry’s biggest advocates inside the Securities and Exchange Commission has offered her thoughts on the regulatory agency’s latest action against a crypto player—criticizing the SEC for taking an “enforce, don’t-figure-out-how-to-reasonably-regulate approach” against companies in the crypto space.
In a public statement on Monday, SEC commissioner Hester Peirce—who has earned the moniker “crypto mom” for her embrace of the industry—voiced her issues with the agency’s decision to fine crypto exchange Poloniex more than $10 million for operating as an “unregistered online digital asset exchange.”
The SEC claimed that despite running an online trading platform that allowed investors to buy and sell cryptocurrencies—including “digital assets that were investment contracts, and therefore securities”—Poloniex “did not register as a national securities exchange,” in violation of federal securities laws. Poloniex agreed to pay nearly $10.4 million in penalties, albeit “without admitting or denying the SEC’s findings,” the agency said.
According to Peirce, the SEC’s action against Poloniex “doubles down on the Commission’s enforcement-centric approach to crypto”—one that sees the agency take aggressive steps to punish legal infringements, at the expense providing crypto operators with regulatory guidance that could help them avoid such pitfalls.
Peirce noted that at the time of Poloniex’s alleged violations between 2017 and 2019, “the Commission was moving very cautiously with respect to regulated entities’ engagement with crypto assets.” That, in turn, left entities like Poloniex out in the cold as far as receiving the regulatory approval necessary to offer the trading of “digital asset securities.”
“Sure, Poloniex could have tried to register as a securities exchange or, more likely, as a broker-dealer to operate an alternative trading system, a type of regulated trading venue that might be better able to accommodate non-traditional securities,” Peirce wrote. “Had it done so, it likely would have waited… and waited… and waited some more.”
Peirce then offered a recent timeline of the slow and limited manner in which federal regulators like the SEC and the Financial Industry Regulatory Authority (FINRA) have looked to regulate crypto platforms—one juxtaposed by the more severe fashion in which they’ve sought to bring enforcement actions against the likes of Poloniex.
“Given how slow we have been in determining how regulated entities can interact with crypto, market participants may understandably be surprised to see us come onto the scene now with our enforcement guns blazing,” she said.
The Poloniex case is the most recent instance of the heightened regulatory action and rhetoric confronting the crypto industry as of late. Last week SEC chairman Gary Gensler compared the asset class to “the Wild West” and voiced the need for more investor protections; Gensler’s comments were followed days later by the SEC’s first enforcement action targeting the “decentralized finance,” or DeFi, space.
Still, many in the ever-growing crypto industry are eager to see regulations that would more readily spell out how entities in the crypto market are allowed to operate. Peirce ended her note with a number of questions that she said the SEC needs to address for crypto trading platforms looking to register as regulated securities exchanges—with the onus falling on regulators to spell out what conditions are necessary and what activities are permitted.
“I hope we address these and other issues raised by entities that want to participate in this area expeditiously and in a way that acknowledges the need to come up with sensible solutions,” she wrote.
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