‘Kraken Down’ — SEC commissioner rebukes own agency over recent action

United States Securities and Exchange Commission (SEC) Commissioner Hester Pierce has publicly rebuked her own agency over the shutdown of crypto exchange Kraken’s crypto staking program in the United States.

The commissioner blasted her agency in a Feb. 9 statement titled “Kraken Down,” arguing that regulation by enforcement “is not an efficient or fair way of regulating” an emerging industry. She wrote:

“Today, the SEC shut down Kraken’s staking program and counted it as a win for investors. I disagree and therefore dissent.”

Peirce’s statement also slammed the regulator for shutting down a “program that has served people well.”

“Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it,” she wro.

My thoughts on today’s Kraken settlement: https://t.co/mijt3MNN4U

— Hester Peirce (@HesterPeirce) February 9, 2023

Peirce implied the regulator was “lazy and paternalistic” and suggested the SEC should have initiated a “public process to develop a workable registration process that provides valuable information to investors.”

Coinbase CEO and co-founder Brian Armstrong agreed with Peirce’s comments in a Feb. 9 tweet, suggesting that requiring businesses to register its staking services is a “disingenuous offer” as there is no clear path to registration.

Well said. There was no way to register (a disingenuous offer).

“Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.” https://t.co/6wVZZbQt23

— Brian Armstrong (@brian_armstrong) February 9, 2023

Earlier this week, Armstrong said he had heard “rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers,” and said “it would be a terrible path for the U.S.” as it would further drive crypto businesses offshore.

Coinbase is currently the subject of a SEC probe similar to the one that resulted in the Kraken settlement, which it revealed in an Aug. 9 SEC filing was also related to its staking services.

On Feb. 9, the SEC announced that it had reached a $30 million settlement with Kraken, saying it failed “to register the offer and sale of their crypto asset staking-as-a-service program.”

Today we charged Kraken with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.

— U.S. Securities and Exchange Commission (@SECGov) February 9, 2023

Kraken said in a Feb. 9 blog post that it would still offer staking services to non-U.S. customers through a subsidiary, but according to the SEC announcement, the firm is permanently banned from providing staking services to U.S. residents, even if they sought to register it with the regulator.

Peirce, also known as the SEC’s “Crypto Mom,” has been a strong advocate for the crypto industry during her time at the regulator.

Peirce has previously proposed a “safe harbor” for token projects which are looking to build decentralized networks, in which the network developers would receive a three-year grace period where they were exempt from SEC legal action. She released an updated version of her proposal on April 13, 2021.