SEC Commissioner Hester Peirce Says SEC Is ‘Hostile To Crypto’

Last week, Hester Peirce, a commissioner at the US Securities and Exchange Commission (SEC), criticized the agency for its decision to force crypto exchange Kraken to close its crypto betting services to all US customers.

On February 9, 2023, Kraken announced in a blog post that it had agreed to shut down its crypto staking services for US customers:

“Today, two Kraken subsidiaries announced a settlement with the US Securities and Exchange Commission (SEC) regarding Kraken’s on-chain staking program. Due to this settlement, Kraken has agreed to end its chain staking services for US customers.

“Starting today, Kraken will automatically remove all US client funds registered in the stake program on the chain. These assets will no longer earn stake rewards. This applies to all staked assets except staked ether (ETH), which will be unstaked after the Shanghai upgrade. US customers will not be able to stake additional assets, including ETH. Kraken will continue to provide staking services for non-US customers through a separate Kraken subsidiary… Staking services for non-US customers will continue uninterrupted. Non-US customers can continue to stake and unstake assets, as well as automatically earn and stake rewards, as usual.“

On the same day, the SEC issued a press release about Kraken that said:

“The Securities and Exchange Commission today charged Payward Ventures, Inc. and Payward Trading Ltd., both known as Kraken, with failing to register the offering and sale of their crypto-asset staking-as-a-service program, in which investors transfer crypto-assets . to Kraken for staking in exchange for an announced annual investment return of a whopping 21 percent.

“To settle the SEC’s charges, the two Kraken entities agreed to immediately stop offering or selling securities through crypto-asset betting services or betting programs and pay $30 million in disgorgement, prejudgment interest and civil penalties.“

In a statement (“Kraken Down: Statement on SEC v. Payward Ventures, Inc., et al.”) published on the SEC website on February 9, 2023, Peirce raised questions about the SEC’s analysis of the stake program as a securities offering, including the potential need for separate registration of each token’s staking program, required disclosures and accounting implications for Kraken.

Peirce criticized the SEC’s approach, saying it was more efficient and fair to provide guidance on enforcement programs rather than talk through enforcement actions. She also expressed concern about the regulator’s decision to shut down the program altogether, calling it paternalistic and lazy. Instead of developing a workable registration process that would provide valuable information to investors, the SEC simply shut down the program, Peirce said.

She went on to add:

“The program will no longer be available in the United States, and Kraken is required to always provide a wagering service in the United States, registered or not. A paternalistic and lazy regulator settles on a solution like the one in this settlement: don’t initiate a public process to develop a workable registration process that provides valuable information to investors, just drop it.

“More transparency around crypto-staking programs like Krakens may well be a good thing. However, whether we need a unified regulatory solution and whether that regulatory solution is best delivered by a regulator hostile to crypto, in the form of an enforcement, is less clear.“