Meet The Watchdog Called CryptoMom (#GotBitcoin?)
SEC’s Hester Peirce—Republicans’ muse on financial regulation—has won fans for her support of the digital-currency market. Meet The Watchdog Called CryptoMom
Cryptocurrency startups and traders fighting stricter regulation think they have their champion. They call her CryptoMom.
Hester Peirce, a Republican member of the Securities and Exchange Commission with libertarian leanings, has made waves with a number of contrarian positions since joining the agency last January. She has drawn attention for frequent votes against enforcement actions and calling on the SEC to moderate how it levies fines against companies and some individuals accused of wrongdoing.
But it was the vote she cast in July—the lone one in favor of allowing what would have been the first retail investment fund tied to bitcoin—that won her the maternal moniker from traders eager to see easier access to the cryptocurrency.
“A lot of the crypto guys are completely new to securities regulation, and in many cases they think how it works is terrible,” said Sara Hanks, a lawyer who leads CrowdCheck, a firm that advises crypto startups on complying with securities laws. “She’s been more willing to say, ‘Let’s not stifle innovation.’ ”
Ms. Peirce, who doesn’t have children, has embraced her new nickname and recently told a group in San Francisco that she would be a “free-range mother,” while the SEC was a “helicopter mom” trying to protect the population from investments that look too exotic or risky.
Ms. Peirce’s regulatory philosophy is well known inside the agency, where she has voted against settlements or penalties in about 10% of all cases handled in the SEC’s in-house courts, according to analysis of agency records.
A former Republican commissioner who recently left the SEC, Michael Piwowar, voted against penalties or entire cases just 3% of the time, according to the same analysis, which examined SEC votes from January 2016 to November 2018. The SEC’s Democratic members voted against enforcement settlements about 1% of the time, the figures show.
Behind closed doors, Ms. Peirce has sometimes questioned the SEC’s enforcement attorneys so aggressively that she later apologized for remarks that could be seen as denigrating their work, according to people familiar with the matter. She declined to comment on those interactions.
One such case involved a crypto company known as Airfox, the people said, a startup that raised $15 million through the sale of a digital coin that the SEC said skirted investor protection laws. Airfox in November agreed to pay a $250,000 penalty and offer money back to investors. Ms. Peirce voted against the penalty, according to SEC records.
In a more recent action, finalized on Dec. 18, Ms. Peirce voted against suspending from the accounting industry a former Panasonic Corp. executive accused of misleading auditors about a backdated contract designed to boost revenue in one quarter. She said the SEC had signed “the death warrant” for the former financial officer by barring him from his profession for at least five years, one of the people said.
In an interview, Ms. Peirce said she disagrees with fining public companies when shareholders may have already been hurt by a drop in the company’s stock price when fraud or misconduct was discovered. On the other hand, she says, she is sympathetic to a new generation of entrepreneurs who are trying to apply the technology that underpins bitcoin to other uses.
“I think it’s OK to hold their hands a little bit, to say we want you to be able to raise money if you’re not ripping anyone off,” Ms. Peirce said. “We also want you to do it in a way that complies with our rules.”
Crypto-asset developers and traders closely parse commissioners’ statements for what they might signal about future regulations. Supportive remarks can lift prices, while bearish decisions can send asset values plummeting. Bitcoin is down more than 80% from its December 2017 high, and the total market value of all cryptocurrency, currently about $111 billion, has fallen 87% from its January 2018 high of $827 billion.
Ms. Peirce, 48 years old, grew up in Cleveland Heights, Ohio, where her father was an economics professor at Case Western Reserve University. He ran unsuccessfully for governor of Ohio on the libertarian ticket in 2006.
Studying economics at Case Western “radically shaped my view of things,” she said, including her views on how regulation distorts natural incentives for businesses and entrepreneurs.
After law school at Yale University, she worked at the SEC for eight years and in 2008 joined the Senate Banking Committee as a Republican staff member. In 2012 she took a position at a libertarian think tank at George Mason University, where she co-wrote a book that criticized the Dodd-Frank law, the sweeping financial-overhaul measure that passed while she worked in the Senate.
J.W. Verret, a law professor at George Mason, said he mentioned the book when he interviewed in 2013 with Rep. Jeb Hensarling, the chairman of the House Financial Services Committee. “He said, ‘Oh, you mean this book?’ And he pulled it off a stand right next to his chair,” Mr. Verret said. “She wrote the tome for how Republicans think about the post-Dodd-Frank era.”
In 2017, the White House nominated Ms. Peirce for a seat on the SEC, a move that was anticipated given her close ties to conservative lawyers such as Paul Atkins, a former commissioner who served as a regulatory adviser to President Trump after the 2016 election.
Barbara Roper, head of investor protection for the Consumer Federation of America advocacy group, said Ms. Peirce fits the standard for a newer generation of Republican commissioners at the agency who are more confrontational and conservative than the establishment lawyers who occupied the roles two decades ago.
“For conservatives, she’s like the ideological purist for deregulation and minimal government intervention,” said Ms. Roper, who often pushes for stricter oversight of brokers and money managers. “I think she’s perfectly willing to hold a hard line as the condition for getting her vote.”
Friends say Ms. Peirce’s interest in cryptocurrency comes, in part, from her libertarian leanings.
The SEC has cracked down in the past year on deals known as initial coin offerings, a method of financing cryptocurrency ventures. The regulator says many ICOs were fraudulent, while most failed to comply with rules that require investors be given audited financial statements and detailed risk disclosures.
In enforcement cases involving crypto assets, Ms. Peirce has often questioned whether defendants understood how their token sale might be deemed a security, according to people familiar with the matter.
But it was Ms. Peirce’s criticism of the SEC’s decision to reject an exchange-traded fund proposed by Cameron and Tyler Winklevoss that won her cult-like status among crypto boosters. She disputed the SEC’s basis for rejecting the product, saying the logic, if extended to other commodities, would have prevented the sale of exchange-traded funds that track the price of gold or oil.
“There is a lot of advocacy in the crypto community for abolishing regulations or ignoring them, but what I liked about her dissent was that it came from a reasoned place,” said Andy Bromberg, co-founder of CoinList, a startup that helps crypto projects raise capital.
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