Hester Peirce Calls Two of SEC’s Enforcement Actions ‘Arbitrary,’ Says Agency’s Ambiguity May Be Deliberate

U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce is voicing her disappointment with what she says is the agency’s lack of predictability.

In a speech, Peirce says the enforcement actions brought by the SEC against blockchain-based file-sharing payment network Library (LBRY) and crypto asset trading platform ShapeShift arose because of regulatory ambiguity.

“Some of the SEC’s recent crypto cases illustrate the problem that a lack of predictability brings. These cases struck many, including me, as arbitrary.”

In March, the SEC filed charges against ShapeShift alleging that the platform bought and sold crypto assets as securities. The company agreed to pay $275,000 in penalty to settle the charges.

Peirce says ShapeShift’s legal issue stems from uncertainties in knowing how the SEC determines crypto assets as securities.

“It is entirely unclear how ShapeShift was to discern that the Commission would consider crypto assets generally—and any crypto asset in particular—a security in the form of an investment contract. Even now, ten years on, it is hardly more discernible. But perhaps that ambiguity is exactly the result the Commission wants.”

Peirce says the same thing happened with LBRY. The SEC filed a lawsuit against the company in 2021 accusing it of selling crypto assets as unregistered securities. A judge ruled in favor of the regulator.

“LBRY lost a company-crushing lawsuit—not based on fraud, but on a failure to anticipate how the Commission would apply registration rules designed for traditional equity or debt securities to a completely new genre of business enterprises.”

Peirce says the SEC should foster a predictable regulatory framework to give people the confidence to invest and encourage entrepreneurs to try something new.

“Rules need to keep up with changes in the market, but predictability is an essential precondition to a vibrant entrepreneurial culture. Rules may change, but they should do so after adequate time for public discussion about the wisdom of such changes.”

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