Hester Peirce Revolts Against $100 Million BlockFi Settlement

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  • SEC commissioner Hester Peirce has criticized the agency’s $100 million fine for BlockFi
  • Peirce called the fine “disproportionate” and said that it didn’t help protect investors
  • Peirce has called for better regulations rather than merely fining companies post-launch

Securities and Exchange Commission (SEC) commissioner Hester Peirce has criticized the agency’s handling of the BlockFi case, which has seen the firm hit with a $100 million civil penalty, questioning how it fulfils the SEC’s stated mandate of protecting investors. Peirce, who has long advocated for a more lenient approach to regulation as opposed to just handing out blanket fines, claimed that the penalty for BlockFi misrepresenting over-collateralization was “disproportionate” and argued that rather than encouraging firms to offer transparency it would in fact lead to the nascent industry pulling back.

BlockFi Hit With Two-pronged Fine

BlockFi came onto the SEC’s radar last year when three states pulled it up for selling unlicensed securities through its BlockFi Interest Account (BIA) product. The SEC charged BlockFi with “failing to register the offers and sales of its retail crypto lending product” and “violating the registration provisions of the Investment Company Act of 1940”, with BlockFi agreeing to a two-pronged penalty; a $50 million fine and an additional $50 million in fines “to 32 states to settle similar charges.”

However, Peirce argued in a dissent piece published the same day as the news of the fines that “it is difficult to understand how the civil penalty will protect investors”, which is what SEC chair Gary Gensler has been saying since he took office in 2021 was his priority. She also argued that the penalty was too much considering the act involved:

While penalties this size are intended to deter bad conduct, here there is no allegation that BlockFi failed to pay its customers the money due them or failed to return the crypto lent to it. BlockFi’s misrepresentations about over-collateralization are serious, but the combined $100 million penalty nevertheless seems disproportionate.

Pierce Calls For “Sensible” Regulation

Citing Gensler’s often mocked call for crypto companies to “come in and talk to us”, Peirce also argued that the regulations currently in place were not fit for purpose and said that crypto companies would only seek guidance from the SEC in initial stages if there was a commitment “to craft sensible, timely, and achievable regulatory paths.”