SEC Commissioners Criticize Regulator Over ShapeShift Securities Case

Two SEC commissioners published a scathing letter on Mar. 5 criticizing the agency for its treatment of cryptocurrency exchange ShapeShift. They also denounced the SEC’s approach toward the broader digital asset industry.

The letter comes after a settlement between ShapeShift and the Securities and Exchange Commission. The crypto company was charged with offering unregistered securities, although it disbanded in 2021, converting itself into a DAO – embracing the DeFi ethos.

Hester M. Pierce – who has been outspokenly pro-crypto – and Mark T. Uyeda were categorical yesterday, calling the enforcement action against Shapeshift the “latest installment in the serial drama of the Commission’s poorly conceived crypto policy.”

In the letter, they make two main claims: that the SEC doesn’t specify which of the 79 crypto assets on ShapeShift’s former platform constitute investment contracts, and the agency doesn’t allege any fraud or consumer harm occurred.

Notably, Pierce and Uyeda wrote a futuristic dialogue between a potential provider of digital assets and the SEC, ridiculing the latter for its ambiguity towards crypto.

The letter signals that the SEC isn’t entirely united when it comes to crypto.

While Chairman Gary Gensler has been on an anti-crypto tirade – naming dozens of tokens unregistered securities – Pierce and Uyeda highlight that not everyone agrees with this stance.

The satirical aspect of yesterday’s letter also shines a light on the wariness of some regulators concerning their agency’s relentless attack on the digital asset industry.

Both commissioners poked holes in the agency’s alleged “come in and register” narrative. The SEC has continually said that crypto firms can simply register and abide by the laws of the United States in their businesses.

But as legal teams for crypto companies can attest, the agency has repeatedly denied information offering any clarity on how the rules and regulations apply to the industry.

Pierce and Uyeda added that the letter “is not hypothetical,” saying that current standards are so opaque and arbitrary that the Commission itself is “unwilling to stand by its own analysis.”

Pierce and Uyeda ended yesterday’s dissenting letter by warning, "Cases like this do not protect investors; they intimidate innovators and entrepreneurs.”