SEC Commissioners Peirce and Uyeda call out agency's 'ambiguity' after ShapeShift settlement

The Securities and Exchange Commission's settlement with ShapeShift "adds to the ambiguity" in the crypto industry, the agency's Republican commissioners said in a rebuke of the agency's latest enforcement action. 

"The Commission’s enforcement action against ShapeShift is the latest installment in the serial drama of the Commission’s poorly conceived crypto policy," said SEC Commissioners Hester Peirce and Mark Uyeda in a statement on Wednesday.

The SEC announced on Tuesday that it filed a cease-and-desist against crypto firm ShapeShift for allegedly operating as an unregistered securities dealer. The agency invoked the Howey Test, which is based on a 1946 U.S. Supreme Court case frequently cited by the SEC to determine if an asset qualifies as a security.

"This enforcement action underscores the adverse consequences of the Commission’s approach to regulation in the crypto space and adds to the ambiguity that hangs over the crypto world," said the commissioners. "It is entirely unclear how ShapeShift was to discern that the Commission would consider crypto assets generally—and any crypto asset in particular—a security in the form of an investment contract."

The SEC's approach 

The two Republican commissioners have been critical of the SEC's enforcement approach to crypto. Over the past few years, the SEC has actively pursued legal actions against crypto firms, including notable cases last year against crypto exchanges Binance and Coinbase.

SEC Chair Gary Gensler has repeatedly said crypto platforms need to register with the agency and has said many cryptocurrencies are securities. The crypto industry, meanwhile, has argued that they find it difficult being compliant and still competitive without a clear regulatory path forward in the U.S.

Peirce and Uyeda called the SEC's "just come in and register" approach "manifestly unsatisfying." 

"The fiction that this has been done is undermined by the Commission’s failure to state which specific assets in the case before us are securities," they said. "The standards are so opaque and arbitrary that the Commission itself is unwilling to stand by its own analysis.  If case-by-case determination is possible, we respectfully request that the Commission show its work."