The Securities and Exchange Commission (SEC) is set to hire 20 additional staffers to investigate crypto fraud. The recruitment drive will almost double the headcount, to 50 in total, at its Crypto Assets and Cyber Unit.
However, in a tweet, SEC Commissioner Hester Peirce raised objections to the move. She questioned the agency’s motives for targeting the crypto industry. This split in sentiment suggests internal strife within the agency.
The SEC has come under fire in recent times over its handling of crypto litigation. The most high-profile example of this is the SEC vs. Ripple case.
But others have come forward to air their grievances, including Lbry CEO Jeremy Kauffman, who likened his interactions with the agency to organized crime.
The discovery phase of the SEC vs. Ripple hearing has exposed the SEC to several allegations, including favoritism in picking winners and losers. But perhaps most damning is the claim that former director William Hinman had a conflict of interest while initiating legal proceedings against Ripple.
Overall, crypto advocates will be looking at this news with trepidation. However, as mentioned in the press release, the SEC states that hiring additional staff will increase crypto investor protection.
The SEC will be better equipped to police crypto wrongdoings
SEC Chair Gary Gensler said the recruitment of additional Crypto Assets and Cyber Unit investigators would shore up faith in US capital markets. He added that the move is necessary to handle the expected increase in crypto investors.
“The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them.”
Similarly, the agency’s Director of the Division of Enforcement, Gurbir S. Grewal, said the recent explosion in popularity of cryptocurrencies has left retail investors exposed to the actions of bad actors. Grewal said the SEC will stay “at the forefront of protecting investors and ensuring fair and orderly markets” by bolstering the number of crypto investigators.
However, SEC Commissioner Peirce points out that the SEC is a regulatory agency and not an enforcement agency. That being so, she questioned why the agency is “leading with enforcement in crypto.”
The SEC is a regulatory agency with an enforcement division, not an enforcement agency. Why are we leading with enforcement in crypto?
— Hester Peirce (@HesterPeirce) May 3, 2022
Who will police the ‘crypto police?’
Lawyer and founder of CryptoLaw, John E Deaton, chimed in saying instead of recruiting crypto investigators, the SEC should focus on recruiting Ethics Officers. He also added that the agency’s internal compliance procedures are inadequate.
If you’re going to double down then you need to double down on Ethics Officers and enforce compliance with basic ethic rules and prosecute those who violate criminal conflicts laws. Maybe then, when the SEC Ethics Office tells staff to stop doing something they’ll listen.
— John E Deaton (@JohnEDeaton1) May 3, 2022
Former SEC Director Hinman is accused of ignoring compliance directives regarding his relationship with the law firm Simpson Thacher, which advises the Ethereum Enterprise Alliance. Hinman’s ‘ruling’ greenlit Bitcoin and Ethereum to operate in the crypto space without regulatory scrutiny.
Deaton has been instrumental in opposing the SEC in its lawsuit against Ripple. For example, last year, Deaton led a motion to intervene to have the views of XRP holders heard in court.