SEC Commissioner Hester Peirce Speaks Up on Controversial Penny Stock Bars

SEC Commissioner Hester Peirce has expressed her dissenting stance on the Commission’s latest decision to impose permanent penny stock bars on four respondents involved in adjudication matters. This sentiment was publicized in her tweet on June 28, along with a link to an official statement explaining her position.

Peirce expressed concern in her tweet, stating, “Protecting investors is important, but the government needs to have a good reason to prevent people from investing their own money as they choose.” Penny stocks, often known as micro-cap stocks, are publicly-traded shares of small companies that typically trade for less than $5 per share. Due to their low price and high volatility, they are often considered a high-risk investment. The statement attached to the tweet highlighted the complexity of the issue at hand.

Titled “Perpetual Personal Penny Stock Prohibitions: Statement on the Recent Orders Imposing Bars in the Public Interest,” the statement gave insights into the reasons behind Peirce’s objections.

According to the Commissioner, the records for the cases in question failed to demonstrate that the decision to impose an absolute and perpetual penny stock bar on each respondent was in the public interest. She emphasized that administrative proceedings, such as the ones at issue, should be remedial and not punitive in nature.

The Commission’s orders, as Peirce highlights, prohibit the respondents from participating in any offering of a penny stock, including acting as a promoter, consultant, or agent, or even from inducing or attempting to induce the purchase or sale of any penny stock. This prohibition also extends to the respondents trading in penny stocks in their own accounts with their own money.

Peirce emphasized her disagreement with the broad penny stock bars, citing that they are missing an adequately explained link between the need for the bars and the facts of the cases. Moreover, she clarified that none of the respondents’ unlawful conduct involved penny stocks. Therefore, it is not clear how such prohibitions will protect the public interest.

Finally, Peirce suggested the implementation of narrower penny stock bars, which could serve the public interest by preventing respondents from using other people’s money and accounts to trade in penny stocks, while preserving their right to engage in lawful economic activity with their own money.

This recent discussion spearheaded by Commissioner Peirce sheds light on the grey areas of penny stock regulation and the need for careful scrutiny of each case. It further underscores the ongoing debate surrounding the government’s role in guiding investment choices.


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Legislation Introduced to Remove SEC Chair Gensler from His Role

The Securities and Exchange Commission (SEC) is facing new controversy, as United States Representative Warren Davidson has announced plans to introduce legislation that would remove SEC Chair Gary Gensler from his role. The move follows the SEC’s proposed rule amendments, which could bring certain brokers under additional regulatory scrutiny and redefine an “exchange.” While Gensler has said the proposed changes could benefit investors and markets, SEC Commissioner Hester Peirce has criticized the move, accusing the regulator of stifling new technology and entrepreneurship.

Peirce, who is known as “Crypto Mom” for her pro-crypto positions, has criticized the SEC’s approach to crypto regulations. She believes that the SEC has been expanding its reach to solve problems “that do not exist” and has refused to alter current regulations to allow room for new technologies and new ways of doing business. Peirce has also accused the SEC of using the “notice-and-comment rulemaking process” as a threat. In her opinion, a concept release should have been issued instead of the proposed rule amendments, given the concerns over their ambiguity and scope, and the SEC’s “limited understanding” of the space.

The SEC has faced criticism for using enforcement actions to develop the law on a case-by-case basis, rather than creating clear regulations. The regulator has launched more than a few high-profile actions against crypto companies such as Ripple, LBRY, and Coinbase over alleged violations. It has also taken aim at staking and stablecoins, prompting some critics to argue that the SEC has been stifling innovation in the crypto space.

Meanwhile, Davidson’s proposed legislation to remove Gensler from his role as SEC Chair has raised eyebrows. Gensler is widely regarded as a tough regulator who is committed to protecting investors and ensuring market stability. He has previously served as chairman of the Commodity Futures Trading Commission (CFTC) and is known for his work in implementing the Dodd-Frank Act, which was designed to reform the U.S. financial system after the 2008 financial crisis.

In conclusion, the proposed legislation to remove SEC Chair Gary Gensler from his role is the latest development in a long-running debate over crypto regulations. While Gensler has said that the proposed rule amendments could benefit investors and markets, Commissioner Hester Peirce has accused the SEC of stifling innovation and entrepreneurship. The SEC has faced criticism for using enforcement actions to develop the law on a case-by-case basis, rather than creating clear regulations. It remains to be seen whether Davidson’s proposed legislation will gain traction, but it is clear that the debate over crypto regulations is far from over.


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Crypto Mom Flags New Proposal From SEC as Harmful for the DeFi Ecosystem

United States Securities and Exchange Commissioner, Hester Peirce, popularly known in the digital currency ecosystem as “Crypto Mom” has issued a note of warning that a new proposal from the commission can significantly hurt the Decentralized Finance (DeFi) ecosystem. 


As reported by Bloomberg, a proposal from the SEC seeks to modify the definition of “exchange” as laid down by the Securities Exchange Act of 1934. While the supposed change is not directly tagged to feature crypto or DeFi, the Crypto Mom said the expansive nature of the proposal will undoubtedly be a problem for players in the DeFi ecosystem.

“The proposal includes very expansive language, which, together with the chair’s apparent interest in regulating all things crypto, suggests that it could be used to regulate crypto platforms,” said Peirce. “The proposal could reach more types of trading mechanisms, including potentially DeFi protocols.”

Hester Peirce is a renowned advocate of innovative crypto protocols and has consistently backed the emancipation of the industry despite staunch opposition from regulators.

That she flagged the 654-page proposal from the SEC is a cause for concern, particularly going by the way SEC Chair Gary Gensler is interested in regulating everything crypto. 

While there is a fairly long route for the new proposal which Gensler says will focus on “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities,” to make it into the Federal Register and thus binding on its targeted entities, it has to survive approval approvals from other commissioners.

While the crypto industry may count on Hester Peirce to help stump the survival of the proposal, the fact that other aspects of the financial market will be impacted makes this a dicey situation that may see other commissioners back the new rule.

In all, the DeFi ecosystem and the broader crypto industry are poised to witness more customized regulations under Gary Gensler and the warnings from Crypto Mom should be seen as a clarion call to embrace the in-bound regulation.

Image source: Shutterstock


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New SEC Proposal Could Be a Disaster for DeFi Exchanges

Key Takeaways

  • A New SEC proposal looking to expand the definition of a securities exchange could threaten DeFi.
  • The proposal aims to broaden the definition of an exchange to any system allowing buyers and sellers to communicate their securities trading interest.
  • If enacted, the proposal would likely make it impossible for decentralized exchanges to comply with SEC regulations.

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A new proposal from the U.S. Securities and Exchange Commission is looking to expand the organization’s definition of a securities exchange. In doing so, the SEC may be looking to lay the groundwork for regulating decentralized crypto exchanges. 

SEC Proposal Threatens DeFi

The SEC’s attack on DeFi continues. 

In a new proposal published Thursday, the SEC is looking to expand its definition of a securities exchange. The proposal aims to move the SEC’s definition away from systems that match securities orders using a traditional order book to any system allowing buyers and sellers to communicate their securities trading interest.

In addition to broadening the definition of a securities exchange, the proposal also asserts that the new definition will overrule previous SEC no-action letters and guidance, assuring certain kinds of systems are not securities exchanges. 

Under this new definition, decentralized exchanges such as Uniswap would be subject to SEC regulations and would therefore need to register with the SEC as a securities broker. As decentralized exchanges have no way of complying with the current demands placed on securities exchanges by the SEC, the new legislation would effectively kill decentralized exchanges operating within the United States.

DeFi enthusiast Gabriel Shapiro highlighted the potential devastating effects of the proposal in a blog post, noting that “because the proposal achieves this expansion by providing new restraints on ‘communication protocols,’ I believe it may also be unconstitutional as a restraint on free speech,” taking a strong stance against the proposed changes. He also suggested that under the new definition, the SEC could class block explorers, such as Etherscan, as securities exchanges because they allow users to interact with smart contracts to communicate trading interests.

Shapiro is not the only prominent figure to come out against the SEC’s proposed legislation. In her dissenting statement on the proposal, SEC Commissioner Hester Peirce has echoed Shapiro’s concerns over labeling communication protocols as securities exchanges. Along with criticizing the broad scope of the SEC’s proposed changes, she also details that the 650-page document goes well beyond the SEC’s scope of government and fixed-income securities.

Peirce also pointed out that the Commission has only given the public 30 days to read, understand, and consider the proposal. She commented that it would be “unconscionably reckless” to limit discussion to one month for a decision that will likely affect the $22 trillion Treasury market in new and unforeseeable ways.

Over the past several months, the SEC has moved against DeFi protocols in an attempt to bring them under its purview. In September last year, the SEC was rumored to be investigating Uniswap Labs, the company behind the biggest decentralized exchange, Uniswap. 

More recently, the SEC served Terraform Labs co-founder Do Kwon two subpoenas when he attended the Messari Mainnet conference held in New York last October. In Kwon’s case, The SEC appears to be concerned about Mirror Protocol, a DeFi platform that allows users to mint synthetic assets on Terra.

SEC chair Gary Gensler has frequently stated that he believes the SEC should be regulating DeFi protocols and exchanges. Gensler has asserted that many DeFi tokens likely fall under the category of securities, while also stating that DeFi will need to operate under a public policy framework in order have “any relevance five and 10 years from now.”

As regulatory scrutiny from U.S. government agencies increases, those defending the growing DeFi sector will need to pull out all the stops to ensure sweeping proposals from organizations like the SEC don’t crush crypto innovation in the U.S. 

Disclosure: At the time of writing this feature, the author owned ETH, LUNA and several other cryptocurrencies. 

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SEC Commissioner says ‘safe harbor’ laws would’ve made ICO problems worse

Caroline Crenshaw, a commissioner at the U.S. Securities and Exchange Commission (SEC) has said the “safe harbor” proposal would have exacerbated the problems seen during the initial coin offering (ICO) boom of 2017 and 2018.

Crenshaw made the remarks during the annual “SEC Speaks” event this month, and posted her speech to the SEC website on Oct. 12. The Commissioner argues that the impact on investors and markets would have been far greater if safe harbor provisions were in place at the time:

“I think the results would have been even worse for investors and the markets. ICOs and other digital asset offerings raised billions from investors, but most never delivered on their promises. Investors suffered the losses.”

“And I think it is not a coincidence that these problematic offerings pre-dated and continued through the beginning of a multi-year downturn in the value of digital assets, sometimes known as the crypto-winter,” she added.

The safe harbor proposal has been advocated by crypto-friendly SEC commissioner Hester Peirce. The proposal seeks to grant network developers a three-year grace period to build a decentralized network without fearing SEC legal action, but has yet to be embraced by most of the other commissioners.

Peirce, or “Crypto Mom”, put forward a revised version earlier this year in March. Cointelegraph reported on Oct. 5 that North Carolina House Representative Patrick McHenry also put forward a three-year safe harbor proposal in a draft bill of the “Clarity for Digital Tokens Act of 2021.”

Crenshaw argues that instead of pushing the crypto sector towards compliance, the safe harbor proposal would put investors’ capital at further risk as crypto tokens would be deemed outside of the jurisdiction of the SEC for “several years.”

“I also worry that relaxing regulatory requirements in markets prone to investor protection failures, limited investor redress options because of pseudonymity and disintermediation, and market manipulation, cannot sustain investor confidence or yield lasting broad adoption,” she said.

Related: Gensler confirms SEC won’t ban crypto… but Congress could

Instead of a safe harbor, Crenshaw called for a “bridge” in which token issuers and other crypto firms work with SEC to outline plans for regulatory compliance, or discuss specific exemptions when they are deemed “appropriate,”:

“I believe that if market participants accept proactive responsibility for compliance, we can build a bridge that promotes innovation while preserving market integrity and providing the investor protections needed for these new markets to grow.”

“If you likely fall within our jurisdiction, work with us to describe your plan to comply or explain why some exemption is appropriate,” she added.

Crenshaw’s remarks also echo the sentiments of chair Gary Gensler, who has regularly called for crypto firms to work with the SEC and register with the regulatory body.