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In a series of emails received directly from the U.S. Securities and Exchange Commission (SEC) on Thursday, February 27, 2025, we witnessed one of the most remarkable shifts in policy I have seen in my 35 years of observing and engaging with the Commission. The transformation is nothing short of groundbreaking. Rather than summarize, we’ll let the words speak for themselves. If you have even a passing interest in blockchain, cryptocurrency, entrepreneurship, or innovation, you’ll want to read the full statement from Commissioner Hester M. Peirce on the Dismissal of the Civil Enforcement Action Against Coinbase:
Today the [SEC] Commission settled its case against Coinbase by dismissing it with prejudice. I did not support the action against Coinbase. Among other things, I was concerned that it was part of the Commission’s larger strategy to use its enforcement tool to regulate the crypto industry. Typically, developing regulations to address new industries and business practices is the province of the Commission’s capable, expert policy divisions. The decision by the previous Commission to shift this function to the Division of Enforcement by engaging in a large-scale regulation-by-enforcement initiative harmed the American public, adversely affected the industry, and impeded the ability of the Commission’s skilled and dedicated professional staff to use their expertise as it was intended to be used.
The American public suffered because environments in which the law is unclear are havens for bad actors and hostile territory for law-abiding people legitimately trying to solve society’s problems and meet its needs. The lack of clarity creates an added layer of uncertainty for startups and ultimately may drive these innovators and entrepreneurs to other economic sectors or jurisdictions with clearer regulatory lines. Bad actors, by contrast, hide between regulatory jurisdictions and use the blurry lines to confuse consumers. As a consequence, Americans enjoyed fewer of the fruits of innovation and more of the distress of predation over recent years than they would have in a clear regulatory regime.
The Commission took a sweeping and difficult-to-decipher approach in its application of Howey to the crypto industry. The industry suffered because effort that would have gone into building interesting and innovative products and services instead went into strategizing with costly lawyers to determine how best to avoid regulatory liability. In the action against Coinbase, the Commission leveled only registration charges premised on Coinbase’s listing of tokens swept up by this expansive Howey analysis. Many other Commission actions followed a similar approach. Token issuers (often not party to the suits), other industry participants, and their counsel were left to divine whether the Commission would deem a particular product a security from clues dropped into the Commission’s complaints in myriad crypto-related cases.
Finally, the regulation-by-enforcement strategy ill-served the Commission’s staff. Although staff represent the Commission in court and their names are on Commission filings, the ultimate decision about whether to institute or settle enforcement actions lies with the Commission. The Commission’s vote to institute or settle an enforcement action is not a mere formality, and the Commission bears sole responsibility for its decisions. The Commission—unwisely in my view—chose not to use its policy tools but instead relied on a series of enforcement actions to write crypto policy. Regardless of their own policy preferences, the Commission’s talented enforcement staff, who report to the Chairman, crafted an enforcement program that reflected this choice. The enforcement staff appropriately worked hard to execute as effectively as possible the Commission’s directives to pursue approved enforcement actions. Meanwhile, the Commission’s policy staff could not engage productively with the public to build a workable regulatory framework for crypto absent a Commission directive to do so. Such a directive was absent for the past four years.
The current Commission has now issued such a directive with the formation of the Crypto Task Force: It is the policy staff who will take the lead in engaging with the public to build a regulatory framework that serves the American public. This new approach drives today’s dismissal of the charges against Coinbase, but it does not signal an end to the Commission’s use of its enforcement tool in appropriate cases.
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Noel J. Guillama-Alvarez
https://www.linkedin.com/in/nguillama/
+1-561-904-9477, Ext 355
https://www.sec.gov/newsroom/speeches-statements/peirce-statement-coinbase-022725
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