Reflecting on the enforcement action taken against ShapeShift, SEC Commissioners Hester Peirce and Mark Uyeda have criticized the Commission’s slapdash approach toward crypto under Chairman Gary Gensler. The Commissioners have issued a dissenting opinion on the enforcement action.
In an Administrative Proceeding, it was determined that ShapeShift must pay a civil penalty while ceasing any future violations of the Exchange Act.
ShapeShift was penalized by the SEC due to claims it should have registered as a securities dealer.
ShapeShift was a crypto exchange that enabled the trading of digital assets before it announced in 2021 that it was changing its business model.
The two Commissioners note that while the SEC claims that ShapeShift sold investment contracts and thus traded securities. The SEC did not (or could not) determine which digital assets were securities.
At the same time, the SEC does not claim any harm to its users of the marketplace.
Commissioners Peirce and Uyeda state:
“The standards are so opaque and arbitrary that the Commission itself is unwilling to stand by its own analysis. If a case-by-case determination is possible, we respectfully request that the Commission show its work.”
They add that cases like ShapeShift do not protect investors, but they do intimidate innovators and entrepreneurs, describing the environment as untenable, opaque, and arbitrary.
Some observers believe that the SEC, under the direction of Chairman Gensler, has missed an opportunity to be a transformative Commission, providing bright-line rules for digital assets rather than leaning on rules established decades ago—well before the internet.