- In a first interview following the lawsuit against Ripple, SEC Commissioner Hester Peirce said that enforcement actions are never a good way to provide regulatory clarity.
- According to Peirce, the howey test does not provide enough clarity and is contrary to FinCEN rules.
SEC Commissioner Hester Peirce, known as “Crypto Mom,” has spoken publicly for the first time since the lawsuit against Ripple Labs came to light, stating that enforcement is never a good way to provide clarity. In the interview with Forkast, she declined to comment specifically on Ripple due to the ongoing litigation.
However, she pointed out that “everyone needs to look at the facts and circumstances.” She further stated that her own views are not necessarily the same as those of her colleagues. For an enforcement action to pass, three of five SEC commissioners must vote in favor of it. With that in mind, Peirce said:
In enforcement actions, it’s often a unanimous vote, but it’s sometimes not – once that vote has been taken, the litigation moves forward. Often, you’ll see that the litigation ends in a settlement – sometimes it goes through and the litigation actually plays out in court.
Regulatory ambiguity over XRP
The interview also went into an argument made by Ripple, which argues that XRP should not be classified as a security. Back in 2015, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) classified XRP as a digital currency. Asked about this contradiction with the SEC’s view, Peirce said that each agency has its own set of rules to follow:
I think that’s not only a problem with respect to digital assets, it’s actually a broader problem because we have this very open-ended category called an ‘investment contract’.
Under the legacy howey test, an investment contract exists when an investment of money is made in an enterprise with the reasonable expectation of profits. The profits thereby depend on the work of others. According to Peirce, however, the howey test does not provide sufficient clarity:
So something might be characterized as one thing by another agency, yet still be a security under our rules, and that can be frustrating for people. That’s why I have called for more clarity, because I actually think it can be difficult to determine whether something fits within the security bucket or not, and we could do more to provide some guideposts for what that would be.
On the direction of crypto regulation in 2021, Peirce said, “a lot is going to depend on who the chairman is under President Biden, and that will help determine the direction that the Commission goes on a lot of issues, but cryptocurrency being one of them.” Furthermore, Peirce also stated that “the SEC hasn’t done a fantastic job in getting out in front and setting clear lines for crypto and other countries have been much faster to do that.”
As CNF reported, the first pretrial hearing of the securities lawsuit against Ripple will take place on Feb. 22. A detailed rebuttal from Ripple to the SEC lawsuit is expected “within the next few weeks.”