‘Crypto Mom’ Hester Peirce Admits Flaws in SEC’s Crackdown

Hester Peirce, alias ‘Crypto Mom’, joined the Chair of the US Securities and Exchange Commission (SEC), Gary Gensler, before Congress on Tuesday. The commissioners began a two-day session before the house committees as the agency’s actions overseeing the crypto industry are under scrutiny.

The lack of clarity in the digital assets market remains a bone of contention among industry players, with investors and crypto executives alike appealing to the SEC for a more favorable environment.

Hester Peirce Speaks on SEC’s Regulatory Actions

Hester Peirce spoke before the House Financial Services Committee on Tuesday, admitting that the SEC moved forward with enforcing crypto regulations despite being aware of potential legal issues. According to the ‘Crypto Mom’, this was a harmful approach, acting against the SEC’s institutional integrity.

“We knew ahead of time that there were legal questions about whether we have the authority to do what we did, but we moved forward,” Peirce said.

Peirce also highlighted the commission’s struggles to navigate the regulatory environment for digital assets. These remarks came as US Representative Tom Emmer grilled the commission, accusing Gary Gensler of leading a rogue campaign against the crypto industry.

He slammed the SEC chair for his actions abusing the agency’s enforcement tools. According to Emmer, Gensler actively baited crypto-related firms that were open to compliance so that he could hit them with enforcement actions.

Read more: Who Is Gary Gensler? Everything To Know About the SEC Chairman

Nevertheless, Gensler countered Emmer’s accusations, defending the agency’s regulatory actions. He asserted that court rulings affirming the clarity of the Howey test helped determine what constitutes a security and what defines an investment contract.

Further, Gensler articulated risks plaguing the crypto industry, citing cybersecurity concerns. Specifically, he said exchange-traded funds (ETFs) are at risk because of their concentration. These notwithstanding, Emmer’s accusation of the SEC causing confusion in the market and lacking accountability stood out as he highlighted the inconsistencies in the SEC’s approach to regulation.

The sessions come as the securities regulator continues to maintain a strained relationship with the crypto community. Among other reasons, a lack of clarity, unfair regulation, and regulatory overreach, which jointly present the US as an unfavorable environment for crypto, are the bones of contention. For the regulator, however, the industry is plagued with non-compliance, posing a constant threat to customers.  

Paradigm Explores Gary Gensler‘s Actions

In the 2023 financial year, the SEC’s enforcement division took 784 actions, which resulted in $4.9 billion in penalties and disgorgement, the regulator’s joint testimony revealed.

Against this backdrop, research from Paradigm shows that the securities regulator has taken 171 enforcement actions against the crypto space since 2021. Notably, however, these actions escalated since Gensler ascended office as chair in April that year.

“Since Chair Gensler took office on April 17, 2021, the SEC has increasingly gone to court to establish its policy positions —confirming what the industry has long known regarding regulation by enforcement,” Paradigm Policy Manager Brendan Malone indicated.

According to Malone, Gensler’s SEC has seen a 9 percentage-point decrease in actions against companies and a 5 percentage-point increase in actions against individuals. Further, 92% of the SEC’s actions against the crypto industry under Gensler have involved registration violations. This beats the actions of preceding SEC Chairs by a significant margin of 5%.

Additionally, there has been a 12% increase in actions under the ‘34 Act under Gensler. These were inspired by large increases in actions against crypto platforms on allegations of operating as unregistered exchanges, brokers, or clearing agencies.

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

Based on these facts, among others, the researcher slams the SEC for using the courts to litigate policy issues instead of writing rules. It also calls out the commission for preying on individuals with limited resources and incentives to establish precedent on token issuance actions.

The SEC commissioners will appear before the Senate Banking Committee on Wednesday, September 25, ending the two-day hearing.