SEC Commissioner Hester Peirce, also known as Crypto Mom, has a history of publishing pointed dissents as the US SEC continues on a path of regulation by enforcement with countless actions commenced against crypto-asset product issuers.
A strange "come in and talk" without any path to compliance (save for the often ridiculed Prometheum project) has led to projects expecting to be sued if they visit the SEC. In response to a recent SEC action against a project which effectively ceased operating in 2021, Commissioner Peirce joined with Commissioner Uyeda in publishing what is likely her most viral dissent to date, saying:
In sum, ShapeShift is in trouble because the Commission, nearly ten years after ShapeShift’s platform started trading and more than three years after it changed its business model, now contends that some unidentified number of the 79 crypto assets it traded between 2014 and 2021 were investment contracts without explaining why. Notably, the Commission does not allege any harm—ShapeShift and its customers voluntarily transacted and the Order nowhere alleges that ShapeShift defrauded its customers.
Commissioner's Peirce and Uyeda then go on to draft an imaginary screenplay, which is reproduced in full below because it's so frighteningly accurate and also just amazing:
One can imagine the dialogue for that scene in a future episode:
Future ShapeShift (“FSS”): Hello, I would like to register as a dealer.
SEC: Why?
FSS: Because I think some of the assets that I plan to deal might be deemed at some point by the SEC to be securities.
SEC: Which ones?
FSS: I’m not sure because I can’t really understand what criteria you use to decide whether a token offering is a securities transaction and, if it is, whether the token that was the subject of the investment contract remains a security in secondary market transactions.
SEC: Well, if you don’t know whether you’re dealing in securities, you can’t register. And by the way, if some of the assets you’re dealing in are not securities, you also can’t register.
FSS: So can you help us think through which assets are securities?
SEC: No. We suggest that you read the 2017 DAO report,[3] and it will all be clear to you. You can also look at our enforcement actions if you want.
FSS: I read it, and I’ve read about your enforcement actions. I still have questions.
SEC: Hire a lawyer.
FSS: I did, and the lawyer has even more questions.
SEC: Sorry, we cannot help any more than we already have. We don’t give legal advice.
END SCENE
This scene is by no means hypothetical.
That final point was immediately backed up by leading US crypto lawyers on X (formerly Twitter) and has been turned into a musical. The dissent closes powerfully noting:
The environment we have created for the crypto asset markets, especially as it relates to secondary trading, is untenable. It exposes well-meaning entrepreneurs to a regulatory sword of Damocles. Cases like this do not protect investors; they intimidate innovators and entrepreneurs.
In Australia, the guidance in INFO225 is "signpost" only and similarly there has been no bright line guidance on where a crypto-asset token would constitute a financial product. However, as the Australian regulator ASIC has commenced proceedings against crypto-asset products (principally yield and derivative-like instruments) and has not sought to asset that any particular token is a financial product, there is somewhat less of a sword of Damocles. Proposed regulation for crypto-exchanges in Australia does not address the issue of tokens themselves, leaving somewhat of a sword of Damocles over Australian crypto-businesses, which must be constantly vigilant around what they are offering.
By Michael Bacina
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