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SEC Commissioners Criticize Agency’s Crypto Enforcement Strategy Following ShapeShift Settlement

SEC Commissioners Hester Peirce and Mark Uyeda have openly criticized the agency’s ambiguous cryptocurrency enforcement strategies in light of a recent agreement with ShapeShift. In a comprehensive statement released on March 5, Peirce and Uyeda emphasized the ShapeShift case as indicative of larger concerns within the SEC’s approach to digital assets. “The SEC’s pursuit of ShapeShift represents another chapter in the ongoing narrative of the Commission’s inadequately formulated cryptocurrency policies,” remarked the commissioners.

ShapeShift’s $275,000 Settlement with SEC

The SEC recently finalized its case against the cryptocurrency platform ShapeShift, concluding with a settlement of $275,000. This resolution stemmed from allegations that ShapeShift had provided unregistered securities to its clientele.

Based in Denver, Colorado, ShapeShift featured a roster of at least 79 different cryptocurrencies. Several of these were identified by the SEC as unregistered securities, with the Howey Test serving as the primary criterion for assessment.

Per the settlement terms, ShapeShift is obliged to remit the civil penalty within two weeks of the order’s issuance. Additionally, the company has consented to a cease-and-desist directive, putting an end to any prospective infringements.

“The Standards Are So Opaque and Arbitrary”

“The Securities Exchange Act defines a dealer as ‘any person engaged in the business of buying and selling securities . . . for such person’s own account through a broker or otherwise,'” the statement reads.

“ShapeShift meets this definition, according to the Commission, because ‘the crypto assets offered by ShapeShift included those that were offered and sold as investment contracts and, therefore, securities,'” the statement explained.

However, the commissioners argued that the SEC failed to specify which of the 79 crypto assets traded by ShapeShift were considered investment contracts, nor did it offer any rationale for its determination.

Peirce and Uyeda contended that despite ShapeShift’s significant history and its shift in business model, the SEC accused the platform of violations involving an unspecified subset of these assets as investment contracts, without providing clarity on its reasoning.

According to the statement, the SEC did not even allege any harm caused by ShapeShift, as both the platform and its customers voluntarily transacted.

“The standards are so opaque and arbitrary that the Commission itself is unwilling to stand by its own analysis,” said the commissioners. “The environment we have created for the crypto asset markets, especially concerning secondary trading, is untenable.”

“Cases like this do not protect investors; they intimidate innovators and entrepreneurs. We respectfully dissent,” Peirce and Uyeda concluded.

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