Hester Peirce on Freedom, Fraud, & Fixing the SEC - The Chopping Block

Transcript

the thing that makes this country what it is is that we prize people's right to make decisions for themselves and that is like that is paramount for me and I do you know I understand Congress has given me a mission and I'm I'm working to carry out that mission but I'm always going to be thinking in the you know one one voice in my head is always going to be saying but isn't there a way that we can do this in a way that's more liberty enhancing not a dividend it's a tale of two now your losses are on someone else's balance sheet generally speaking airdrops are kind of pointless Anyways unnamed trading firms who are very involved in is the ultimate defi protocols are the antidote to this problem Hello everybody Welcome to the chopping

block Every couple weeks the four of us get together and give the industry insiders perspective on the crypto topics of the day So quick intros First you got Tom the DeFi maven and master of memes Hello everyone Next we got Robert the cryptoconur and zar of superstate Hey everybody There we go Tun the gigab brain and grand puba at gauntlet Yo joining us today special guests We have Hester Pur SEC commissioner and crypto mom Hello everyone It's great to be here And I'm Hive the head hype man at Dragonfly We are early stage investors in crypto but I want to caveat that nothing we say here is investment advice legal advice or even life advice Please see chopping block.xyz for more disclosures So um Hester Commissioner um it is it is a little bit crazy to have

you on the show because you told us before we started running that you listen to the show while you were cooking Um and so you have you've you've you've heard the uh travailes that we've gone through as a show over the years I have to ask you just to open the show who's your favorite i'm not going to start by telling you who my favorite is but you guys are all wonderful in your own ways It depends on the facts and circumstances of facts Facts and circumstances should have started with what is your favorite moment and least favorite moment in your listening history of of things that have happened on this show I mean my favorite moment is just that you guys are very you're

you're sometimes all the discussion around this industry is so everything is great and you know everyone is is uh so excited and you guys kind of pull that back and you rip it off and you're like well yeah this is really just garbage happening in the name of of uh crypto and you're kind of you know down to earth and real about some of the bad things happening which I do appreciate because I think that's really important for people to hear Um I myself and I'm I you know sometimes you guys are your language is a little more earthy than mine would be but um that is that is you know I'm someone who believes be able to do their own thing and so I you know just that's fine with

me but um I say that but I want to give my disclaimer too which is that my views um including about which of you is my favorite are are my own as a commissioner and not necessarily those of the SEC or my fellow commissioners Got it What is the view of the SEC on who's the favorite it's nobody More importantly are you cool if we post a Giblly meme of you later is that um you know allowed under under Yeah I think it would be good Yeah I I you know I I don't stop anyone from uh posting mean things about me if that if it's going to be a mean It's not mean good It's delightful We'll tell you it'll be wonderful The White House posted a Gibly meme So isn't that true Gibly meme

though i know Strange I I just I'm just saying that like if it if they're doing it then can't everyone in government post a Gibly meme it feels like um I think everyone in the private sector can So we'll leave it there Good to hear So um so for those of you who are completely living under a rock Esther Pur of course longtime SEC commissioner uh she is known in the industry as Cryptom uh because she has been the most fullthroated endorser of the crypto industry and kind of fighting for the industry during the period of what we call the dark ages of the SEC under the Gendzo regime So in most of the important cases that many of which have now been dismissed under the new

SEC uh Gendzer was you know prosecuting all of these really aggressive cases against almost every major actor in the industry And in many of those cases Commissioner Pur was the only loan descent in many of these cases And you know I can tell you you know in our Slack channels were you know or Telegram groups that were going about talking with people in the industry everybody would share your descents and we would read through them It's like reading Montescu Like I don't I don't think you understand how starruck we are at having you on the show because you have been such a beacon of light for the industry that okay there are people in government who understand that yes there's like we're what we're doing is very much in the core of the American spirit in wanting to build something genuinely new

and innovative and yeah sometimes we [ __ ] it up Uh sometimes we stray from the light of God Sometimes we scam a bunch of people you know Yes all those things earthy language has language It was Apologies Apologies Commissioner Um you don't have to apologize Your your your ability to stand up for the industry has been really hardening to all of us And so I just want I just want to say that at the outset of the show Well I I appreciate that But I do want to say you know it really is more of a first principles thing than an industry um advocate thing I because my view is that that people should be able to do in this country We should our our presumption should be freedom There's

sometimes reasons that we as regulators have to come in and say no you can't do it Congress has given us statutory directives to do that at times Um but in general people should be free to to do what they want to do And then it's kind of up to other people whether they want to buy into that or not And I feel like that's really where we lost the we we lost sight of that fact and at the SEC and we started to become um it you know almost like we were trying to prejudge whether or not this innovation was worthy of of the market getting a shot at deciding whether they wanted it or not And that and and whether you know regular Americans could if they wanted

interact with it or not And that to me is is really problematic because once you accept that in crypto what else are you going to accept that in um and so that's really what drove a lot of my um my concern I do think the technology is interesting for a lot of reasons I mean I I think disintermediating um things is is quite an interesting concept for someone who's grown up around the traditional financial industry where we've seen a lot of problems that have emanated from centralized intermediaries And so when I see the possibility of trying to get get more direct more peer-to-peer activity that's exciting to me But really what it is is about this first principles um

concern of mine The other thing I think many people have been heartened by is that for many of the former SEC commissioners um that you know they they they end up doing their tour of duty in government and then they leave and they go become consultants they go you know where they end up working into the industry and you've stayed on post the Gendler regime in the SEC uh uh as an SEC commissioner and very interestingly there was a story and I don't know whether or not you're able to comment on it but there were rumors that people were considering you to become become the NS SEC chair and you know it's it's very common that an SEC commissioner when the chair is um is vacant to to promote somebody from within to become the chair Uh there was a rumor that you did not want the role and so they had to

go out and you know they end up of course finding Paul Atkins to potentially become the next SEC chairwoman Is that true can you speak to that what what what do you want to do next why did you decide to do another tour of duty as a commissioner well I mean I have been here for a long time I've been here since 2018 and and that is quite a long time and I I do think at some point here it's going to be really important to have a new voice sitting where I am Um because I am someone who thinks that there's a lot of wisdom and knowledge out there and so having the same voice in this role for too long I think is problematic So I will say I've it's been an honor and I've enjoyed it and I still have stuff I want to do

before I leave Um but I I I'm really excited to see Commissioner Atkins who I used to work for coming back as a chairman and I think he'll he'll um really rejuvenate um our approach to lots of things including crypto So I think that'll be good Um running a big agency is is is not an easy job Um and so I think it's uh it's it's just as well that someone else is is going to be doing that So does that mean you didn't you didn't want the you genuinely didn't want the role i did not want the role but but again I'm I'm very excited about the person who is taking the role And that's not to say that people wanted me to have the role I'm just saying that

it's not a role that I wanted Understood Understood I think the industry as a whole was excited about you given your track record as commissioner Um so maybe that's where some of those rumors came from Yeah I mean and again uh there there's a lot to be done right now Now I'm running the crypto task force as you as you know and that is there's there's a lot of work there to be done and and so I think that probably is a better use of my time right now than um than trying to run uh the whole agency Again even if if if that were offered to me I think that probably wouldn't wouldn't be the best use and I would not be the best person for that job Talking about the crypto task force you know this is

something that I think you know everybody is excited to see from you know the crypto retail public to you know the halls of Congress What do you think the sort of you know win state is for you know the task force how do you find success what does it look like you know what's the time frame and what are your expectations i mean there there are a lot of things that we should be doing Um right I it's a short time frame right because I don't the task force is not something that should be in existence for all time So we should be um trying to get some some near-term wins What's the lowhanging fruit uh what are the types of guidance documents we can put out right now to to tell people what's outside of our

jurisdiction because I think um there have been a lot of questions about that many of which we've created So we can carve some things out And then for things that are in our jurisdiction how can we help people to comply with the rules um applying the technology uh or matching the technology with our rules where do the frictions come up and what can we do to eliminate those frictions and then working with Congress and and um others on longer term solutions um to to see what a regulatory framework would look like more permanently There will always be a piece of this space that's within our regulatory jurisdiction I think almost no matter what happens in the legislation because

tokenized securities are going to be a thing Um and and already are a thing So I think that's going to be within our space Um but we won't need to have a a crypto task force that's specifically devoted to that you you're right now facing this giant chasm of just you know there we've had digital assets now for what 16 years in the US we have not had a single law passed um we we basically have you know a smattering of rules here and there but there's a lot of just kind of informal guidance and then a lot of vibes people know the vibe has shifted right that's what they know they see the cases being dropped they see the speeches being given um but nothing has actually substantively and legibly

changed yet um what would you say to an entrepreneur who's looking at this and saying "Okay it feels like something has changed but I don't know how it's changed I don't know what I'm supposed to do with this Um does it mean I come does it mean I should move to New York now because I should it means I no longer do foundations and this convoluted overseas structures?" Like what what what does this mean for somebody who's building today or who has a startup today yeah I mean it you know we still live in a in a world with bureaucracies and and that means that things can take time but I I do encourage people to I mean I hate to use the the the tagline come in and register but definitely come in and talk to us and let's figure out how you can

register I don't think you're allowed to use that term ever again now unfortunately I'm sorry Um but so let's let's figure out how you can do what you're trying to do And I I think that's really what I would tell someone Tell me what tell us what you're trying to achieve and where you think it bumps up into the securities laws and we'll try to figure out a way for you to move forward And that may be telling you you know what you actually don't have to worry about the securities laws or it may be saying yeah you do but we can make these adjustments to let you um do what you're trying to do And I think that's really uh to the extent that we can we can we will provide some very shortterm um I mean in the sense in the

short term we'll provide guidance to some people on ways they can move forward Um some things people want may take a little bit longer but we really are looking for what can we do immediately And maybe it's not guidance specifically for your project but maybe it's more general guidance to say you know sort of like we did with the mining you know to say look that doesn't look like something that's generally going to be within our remitt Um so I think that's that's what we're we're telling people um whether and we do want to get away from people having to structure their businesses to avoid any interactions with the SEC which is I think what was going on before and I' I'd like change that So

historically okay Um so it sounds like your answer is come in and talk to us not come in and register Um and we will give you some guidance right i think that um that makes sense but it's obviously not scalable It's not plausible that every founder everywhere in the world is going to come somewhat is scalable right if if everyone's running into the same friction then and we hear about that from people we can say okay let's try to address this friction because a lot of people are feeling it right now And when you address that friction that's large enough do you see it being in the form of staff guidance similar to the memecoins or the proofof work mining do you see it coming in the form of no action letters do you see it coming in some other format like how do you think

the sort of you know larger format changes will roll out i think all of the above I think we're we're going to try to you know staff staff guidance on some things is the right way legally to go about it um that may get at some point baked into a commission level statement or into a rule making Um no action letters are a an option for us It's a tool that we can use to to you know provide the parameters um for a particular project but that can be um something that you know if we if we issue a number of these people can kind of get a sense of where the parameters are Um again it's staff level generally you can do commission level no action

relief um but it's typically staff level and then we can work towards rule making in areas where we think that makes sense and then we can work with Congress to see what they want to put in legislation So I I want to push you a little bit on this answer because uh you know I think given what the SEC has done over the last couple of years or the last you know four years uh the reality is that for most founders they've learned just through experience how scary it is to interact with the US government US government is the most powerful government in the world whether or not you're a US citizen And uh you know you you people might say like well you know everything's changed but well no rules have changed no laws have changed like you know right now all that is is that

okay well you know Hester is now running the show and that's great but uh I think for a lot of people they just reflexively have learned you know this is this this this is not something that they're ready to trust yet So for a founder who says okay look I I I don't want to take unnecessary risk right being sued by the SEC is one of the scariest things one could possibly imagine um how long should they expect to wait to get uh clarity and legible guidance rather than hey come in and talk to us and we'll tell you uh whether through new action letters or through informal guidance I mean again these things do take some time and I I mean I hear you on that It's it it's also a reason why we want to get as much of the

relief into more durable form as we can because um government should not be a government that turns on who's sitting in my seat right we should be we should be taking an approach as an agency that is um you know we spell out what the rules are and then people are told you know help they get help complying with them and then if they don't comply then we bring enforcement actions and because we flipped that script it really has everyone um really concerned to interact with us but I think if people don't interact with us now we can't get to a place where we get good durable relief and So some of this is just going to be painful and it's

going to be slow but we're trying to be as quickly We're trying to move as quickly as we can Um there are hoops we have to jump through inside the building We can't just uh you know as much as I would like just put out statements Um uh they do have to go through a process here So it's not a fully satisfying answer And I think um I think we need to have a bigger conversation as an as the you know as American people about getting government back to a place where it works for the people and it's not viewed as being um the way it's viewed in so many other countries um uh you know as as as having the upper hand in conversations right we

should be viewed as regulators working for the good of the American people and and I I think that is a very important conversation for us to have and I think it's not just limited to crypto I think it's much more much much bigger of a conversation Um so I I know that's not a fully satisfying answer Are there you mention other country are there countries that you look to for inspiration or you think Congress should be looking to um and as as an example of how to do crypto regulation the right way i mean I think different countries have taken approaches that we can draw from I think different some states like Wyoming I feel like got out there very early and they sort of saw the that

there was value in trying to figure out some some early solutions I think Europe was was smart to get their Mika regulation done early and maybe we can learn from some areas where that is too hard to to to deal with the UK has done some things that are um you know trying to do some sandboxing and and things like that So I I think there are um places that that have tried to do things the right way and we can we can learn somewhat from them But I hope we can find a truly you know a a a unique approach that is really very pro letting people try what they want to try with reasonable

parameters That's and that's something that that a lot of other countries aren't as comfortable with So I'm hoping we can do that And that doesn't mean anything goes And I I think that is a point that we need to be careful on You know it's like this is not open season for fraud Um that is something that we're still very eager to bring enforcement cases around to the extent it's within our jurisdiction And if it's not within our jurisdiction it's within someone else's And so you know don't don't do that Actually I a kind of related question on this idea that hey um you know people should be able to to innovate One kind of thing I think we've seen in the last

3 to four years is a lot of innovations from crypto in terms of like 24-hour trading some of the the changes on the futures market side like people trying to launch perpetuals exchanges for um you know equities and things like that like there's actually innovations that flow back to the traditional market So how do you view that um in terms of like how regulation will play a role there andor how do you envision you know regulations that maybe start in crypto that then you know if some of the technologies end up back into traditional finance that you know they port over or they don't or how how do you view that interaction because I could imagine that that's actually like something that will grow over the next

few years Yeah I think it will and I think it it does in some ways complicate things right because we can't just hive off crypto and say "Okay we're going to have a set of rules here that work here." Um and and they won't have any effect on our the traditional markets we regulate But in general I think that's a good thing because one of my concerns about the the traditional financial markets um while we I think we have the best capital markets in the world and and I think part of that is because we've taken a relatively sensible regulatory approach um the barriers to entry still are a real thing and and so I think we haven't seen as much innovation in

traditional financial markets as we have in some other areas because people haven't wanted to jump through those regulatory hoops And so if now by bringing you know cryptos on the scene and by by some of those changes that are happening in crypto we can see wow there might be a more efficient way to do something in the traditional financial markets And so it becomes almost like a a place where we can say okay well we're going to test it out here and maybe if if it works here we can port it over to the traditional financial markets And now I think now that the attitude has changed at the SEC you'll see a lot more interest by traditional financial

players in experimenting with the technology and and so I think that also will push things in a way that could be um very positive on this sort of also idea of the industry um you know being innovative in some way and then traditional markets looking at it Um there's also been this trope of you know the industry will self-regulate and um I I think that's been true in in in some cases obviously there's more to be desired Are there things that you point to of like yeah this is the industry self-regulating and sort of you know raising the bar or things that you want to see more from the industry in terms of you know quote unquote self-regulation or is that just a totally bunk concept i'm just trying to get a gut check I guess No I mean I'm a

I'm a big believer in in true self-regulation and I think some some the technology itself can be very useful in that respect because it's much more open um you can see what's going to happen if you know if you follow the code you know what's going to happen and I think that's actually really good and I think it's also helpful that everyone can play on the same terms but you know if it truly is open source and it's truly um decentralized then then everyone can be there on the same terms those are good things and I think that's a form of self-regulation I think there are other forms of self-regulation like identifying bad players if you see them um And I I think something else that people have tried and feel a little

burned on is you know there were things like trying to figure out whether something was in the securities bucket or not And there were industry groups that were getting together and trying to put together some um ways of analyzing that question And um I think they really felt like the SEC was very dismissive and um didn't appreciate those efforts at all And and so that I I think there's less of that kind of self-regulation than there otherwise would have been So I hope we can incorporate some of that But I'm always a believer that if you can get the market to provide the discipline it's going to be more effective It's sometimes a more brutal form of

discipline Um but it can be more effective and and so it's going to be a mix of government regulation and self-regulation but let's let's let self-regulation do do as much work as it can And I saw you mention in your most recent speech proof of reserves as being one of these examples of you know post FTX exchanges just started doing this not not because they were forced to obviously but just because basically they needed to win back consumer trust in the wake of what happened with FTX Um and so I think there's probably a mixture of both okay sort of the the SEC sort of guides the SC and other agencies guide the industry in the direction of hey we want reliable disclosures and consistency and safety and and so on Um

but the industry also kind of showing the way of like hey there are certain disclosures that we have just evolved of proof of reserves or you publish the um you know the the sort of ownership charts of different tokens or there's transparency into the vesting schedules and these kinds of things or the code of a of an open source project that u you know a traditional securities regime has no concept of but in crypto obviously the industry is telling you we all need this in order for us to feel secure in interacting with these assets Yeah Yeah I mean I think those are great examples And one of the things that made me really sad o over recent years is that not only were we doing all this stuff using enforcement as our way of of of effectively regulating the or

ineffectively regulating the industry but we were also sort of scoffing at efforts such as proof of reserves um where people were looking at ways to organically figure out some of these problems And it's not to say that it's wrong for for people to point out where proof of reserves isn't actually useful You know there you can do it in ways that is not credible and you can do it in ways that that are But but I think um when we've tried to dissuade people from like auditors from even getting involved in those kinds of things that's actually not helpful You want people to try these kinds of things and then thinking about um you know efforts to get more disclosure out there That's wonderful

And I think a lot of people were scared to put disclosure out because then they worried that it would put a a a target on their project Um so I hope we can be in a better place where where that's not the case and where we can really celebrate the parts of the technology that that either substitute for regulation or make it easier to um to to regulate Um so I I hope we can get to a better place I' I'd like to double click on the disclosure conversation a little bit Um because right now you know up until you know the present we've been in this sort of weird state where you know a lot of crypto assets are not registered with the commission and there's questions about well do they

need to register right are they even securities and right now when it comes to market structure conversations you know we don't know for assets that aren't securities right and that's an ongoing conversation you know between you know the halls of Congress and the SEC and the public at large But what do you envision as if any the sort of disclosures that you know nonsecurity assets should be making um could be making or you know on the flip side whether you know as long as things are completely open source you know the code is the disclosure I mean how do you how do you visualize all this yeah Well I think an asset that's not a security might be issued in a transaction that is

a securities transaction and then we already have rules to govern that and we can think about whether we need adjustment to make sure that we're getting the right kind of disclosures But for something that's truly you know it's a it's a digital asset and we we decide that they're commodities which I actually think probably many of these are um it still could be useful for people to have disclosure and so query whether that's something that a trading platform um that's a role for a trading platform that's offering that to try to gather all the information that's publicly you know assuming the project is kind of a decentralized project by now um you know could the trading platform gather that

information and make it available just as as as part of what it does um or if you do still have a team behind it do they want to just you know as part of kind of good governance and and trying to build a good environment Um do they want to make information available about for example what the tokconomics are are they holding back a bunch of these that they're planning to dump at some point that would be good for people to to know Um so I think that that there can be a mix of sources for it Um but if it's not if the asset is not a security I'm a little bit hardressed to figure out how the SEC is the is the disclosure regulator unless Congress gives us that

kind of authority Um and and so I I we just have to see how they think about that I mean I could potentially see a scenario in which you know through some broad exemptive relief you know the SEC does create the standards for you know in certain situations this is what you need to disclose right you know just like the disclosures for asset back securities are different than the disclosures for publicly traded equities right and that's you know through you know commission action and say well okay well you don't have to go through these steps if as long as you know the public understands x y and z and so I could see a situation in which the you know commission says all right you don't have to you know register as security because it's not a security as long as you know

trading venues have access to all the information necessary for people to trade it etc Um you know it'd be very interesting to see you know what you know the staff and the commission thinks the public should know about an asset You know they get into the particulars you know besides the distribution schedule of it You know is it you know network information is it you know original team developer information is it you know the way different protocols work under the hood you know what the security risks are You know really just getting to what are the facts that people would benefit from for both you know capital formation and investor protection genuinely Yeah I mean I think that's something that we're trying to think about and and get people's input

on what information actually is valuable It's something I I tried to think about in connection with the safe harbor that I put out um a few years ago And I think that's you know those are the kinds of of we're getting good feedback on kind of what what information would be useful for people I do want to be careful that we're not um you know overstepping our jurisdictional bounds and so I think um there could be really good information and we could I I we're a good disclosure regulator and so I think we could um put together a good disclosure regime Um but if it's not for for securities and securities transactions then that may be something

that Congress has to explicitly tell us to do I will say that is a big vibe shift from your from the previous SEC Um because it did seem like the previous SEC was very much trying to pull as much into their regulatory ambit as possible Um but I also Okay so we've been we've been we spent enough time criticizing the last SEC Pat but and I think one of the reasons though that they were trying to do that just just to you know I I understand where they're coming from in the sense that there were there was a lot of retail interest in this stuff and people were putting a lot of money into it and they weren't getting the kind of information they needed and so I think you know that's something that we all want to change and I think so let me let me let me ask you

this um what is something that you think the previous uh uh the previous SEC under Chair Gendler did well that it doesn't get enough credit for Um I mean I think that silent silence is everything Okay Okay Got it All right We can move on We can move on But if we're if we're talking about in this area I think that we did bring some cases some fraud cases that were important to bring And I think um I I you know that was important and there was there were a lot of shenanigans going on and I think trying to say look we're not we're not going to tell you those shenanigans are okay Um I

think that that that was a good thing And then I will say another another good thing which actually doesn't get a lot of attention and we could have done more in this area but kind of quietly um there was some progress being made in the in the investment management space on asset management um type uh sort of accommodations and working with issuers in that space to try to figure out how could you issue a tokenized money market fund those kinds of things which you know I I think that is is uh progress that was kind of a little bit under the radar We could have done more on that front but I still am happy that we did some I will say also you know obviously we manage crypto investment vehicles and

crypto investment vehicles didn't really fit into the SEC's uh rules around investment advisors Uh but I think the SEC was actually impressively accommodative and understanding that hey these things ought to exist let's like let's work with people in the industry to make sure that there is capital formation coming from regulated entities So that's one place I think also the SC doesn't get enough credit isn't being open-minded and and willing to work with the investment industry And I think that is a little bit of a a signal that that there are a lot of people on the staff who were who are eager to work with um the industry in a productive way to try to get to some some reasonable practical workable solutions It's just that you know they they did it where they could but there were a lot of signals coming

from the commission that you know that shouldn't be happening too much So not too much of that happened That makes sense Okay So let's shift gears a little bit Um because I know many people who are listening want to hear us talk about memecoins So I think half the people listening to the show hate that we talk about memecoins and then half of them it's all they care about So um one of the big uh um I guess statements that was made from this new SEC was basically the statement that uh memecoins are not necessarily securities Memecoins can't be collectibles Um kind of what more or less everybody already thought which is that of course things like Dogecoin are not securities There's no you know it's hard to imagine who would be issuing securities disclosures for Dogecoin Um but it it left to facts and

circumstances whether or not this thing actually is uh is or is not a security So when you look at the meme coins that are launching uh in recent times obviously the most famous of which is Trump token Trump token was launched by then President-elect Trump now current president It has 80% of the supply controlled by a a for-profit company that is controlled majority by Trump You also have things like Melania token We've also seen all sorts of other shenanigans with things like Libra um help us understand is the new I think many people are interpreting the new posture from the SEC to be um in in the crypto parliament crime is legal and basically look if you want to launch a memecoin you can do basically whatever

you want as long as you call it a collectible um what what is how should we understand what the contours are of something that's a collectible or something you describe as a collectible versus something that is a you know a security and enrichment scheme something it's controlled by um some kind of central party that should be issuing securities disclosures Well I mean you do have to look at the transaction in which the memecoin was sold and try to understand whether that transaction is a securities transaction And I think that um you know one one way that you can do that is look at it through the the the Howie test which everyone knows so well Um but obviously I mean I can take a share of a stock and I can call it a collectible and you might collect it and

pass it on to your kids but that doesn't mean it's not a share of stock that we that we regulate So you know I guess people need to to to think about what the actual memecoin is what that token is and then they need to think about what kind of transaction it was offered in Um but I I I guess the other point I would say is just because we don't have jurisdiction over over um something doesn't mean that there isn't some other regulator or state you know e at the state or federal level that doesn't And so um you know I'd say beware of of just uh a feeling that you can say whatever you want and sell whatever you want and lie to people and and take their money and assume that no one's going to come after you I think that's not the right

takeaway So is that a nod to like fraud statutes or what are you fraud statutes out there and so I don't know why people think that um that that there's no there's there no consequences for bad conduct just because it's it's like people think that because the SEC I guess has been such a dominant part of the conversation They think the SEC is the only regulator in the whole wide world that could ever bring a case on anything And that's that's exactly how we got into this situation is for people to stop thinking about you know they need to stop thinking about the SEC in that way and they need to start looking at what did Congress actually tell the SEC to do and does this activity fit

within that If it doesn't it doesn't mean that Congress didn't tell the the Federal Trade Commission or the CFTC um or the DOJ to do to do things Um and so I I just think people really need to reccalibrate and stop thinking that every time we come out with a statement means that nobody in the world regulates it because we said we don't think we regulate it On the Howie bit um I'm also curious kind of going back to the industry I think there's also a trope in the industry that Howie is almost 100 years old um maybe it's not sort of the right framework for you know regulating and looking at digital assets in 2025 Um and Dre sent a letter to you recently

kind of along these same lines Um how do you think about how we like what would a new Howie look like in 2025 and we were sort of reasoning from first principles about what is a security what's not a security Yeah I mean I think how we trying to figure out what an investment contract is a really interesting question not only in the crypto context but it sort of in other contexts and you see the cases over the years um you know trying to figure that out Is this actually an investment in money in a common enterprise with the expectation of profits based solely on the efforts of others that's not always an easy question whether you're talking about condos or you're talking about chinchillos or you're talking about

crypto that's not an easy question And so I think it's been particularly challenging in the crypto space And that's why I I wish we had sort of thought more carefully about about the application at at the at the SEC Um because I think it it is quite difficult to figure out when it makes sense And I think you're right to point back to okay let's go back to first principles When does it make sense for this to apply because of the economic realities of what's going on um and and that's really what we're trying to wrestle with right now is is to try to figure out how we can reduce that to

guidance that is helpful to people and is easy to apply without having to hire 10 different lawyers and find out what the majority of them say and then go with that Right we really want to have a clear uh clear lines and it's never going to be you know it could be we've seen that there are cases in in other areas not just crypto So it's never going to be easy super easy but I think we should think um what we can do to make it easier I I like that point that it kind of shows a failure of policy that everybody in the crypto industry knows what the howy test is and everybody in the crypto industry has had to become a kind of armchair lawyer when really you know this is not how like you

know this is not the way that a good society ought to be run is that everybody kind of feels like they're having to divine what this rule that was made for orange groves means for this new industry and and nobody knows there's there's no authoritative answer to that question and I mean the application in the in the howie fact pattern was so much easier because you had orange groves that people were buying a slice of plus they were getting an in they were getting a service contract with that and it's it's a very different scenario when you're sorting through statements that people are making you know on podcasts to say you know there's some sort of investment contract that emanates from that and so I I really think we have to think much

more with much more precision to try to think about the application on the unique circumstances of crypto projects And so how can we make sure that we're capturing capital raising uh transactions which is what we really want to capture but we're not stifling the ability of people to sell tokens which are which which don't come with an investment contract Um I don't I I don't think it's that easy and I might think about it quite differently than other people because I think there there are lots of things that you can and and some of the commenters who have written in to the to the um request for information have made this point right there are lots of products that you can sell in

order to raise money um so that you can build out a network of some sort And so we want to make sure that we're treating that kind of scenario the same way in the in the tangible products world as we are in the crypto products world And that that requires some additional thought Yeah I I think at the end of the day um like the easiest way for people to be able to differentiate what they're allowed to do and what they're not allowed to do is to just see examples of this one's okay this one's not okay And under the previous administration there was just there was no answer to what's okay It's like well you know we brought cases against these guys We haven't brought case against these yet Who knows we might Uh

Bitcoin's okay Nothing else we'll give you an answer about And it it just makes it that everybody is forced to have to play lawyer Um and of course most of us play badly because we're you know we're not lawyers Um so I'm I'm heartened to see how much things have changed and this mo movement away from enforcement by regulation But there's also uh there's always trade-offs to all these things So one of those trade-offs that many people have pointed out is that um there's been much reporting that the SEC has reshuffled a lot of people and moved a lot of resources away from the once crypto enforcement unit um to other assignments presumably um as well as you know Doge has now recently come into the SEC and we we've all seen you know the shadow of death when it comes to uh government employment that that Doge

represents Um and so the the assumption for most people is that this means the enforcement capacity of the ACC is going to go down Now most of these enforcement capacity was poorly allocated let's say Um but does this mean that we should expect to see bad actors be able to proliferate well from what I'm seeing many people think that this is what's going to happen is that both we're going to see more good actors and we're going to see more bad actors I hope we don't see more bad actors personally Well I think obviously we all we all hope that I hope Um so I think one concern I've had about the approach that we took in the past is that you can throw a lot of money at enforcement cases and they are very expensive for the SEC I know

they're very expensive for people on the other side They're also expensive and resource intensive for the SEC if they're being litigated And so you can spend all that time and meanwhile there's no way you're going to get to you know even a hundth of the stuff out there because you got to pick and choose which which things you're you're spending your time on And so it's actually a really inefficient way to regulate And so if you can get some sort of clarity in the regulation it makes it easier to distinguish the bad actors from the good actors Now some of these bad activities will not be within our space we can talk with other regulators about um how they might play a role in in in going after some of that bad

conduct Some of it will be in our space and we have we still have a unit that will it's this the cyber and emerging technologies unit which is which is led by um you know a really seasoned uh uh enforcement lawyer here and and that unit will still be bringing cases in the crypto space um and and where there's where there's bad conduct So we will certainly still be spending um enforcement resources but I think more judiciously and and you know then more generally there's there's a big push across the entire government to be more efficient um and and we will do our best

um to do that we have we've we have lost um quite a few people and so we will have to play um smarter with fewer people um and so we'll be looking for ways to do that but I think that's one of the things that when chairman Atkins assuming he gets confirmed when he comes in because he brings a very deep knowledge of this agency over many years um I I I'm sure that he has some ideas about um trying to make us as efficient as we can even if we have fewer resources is so um Atkins has not been confirmed yet of course but the assumption is that you know he's a very wellrespected guy He's very likely to get confirmed given who else has gotten confirmed from this uh from this uh administration Um I the the sense that

everybody has uh uh he is obviously very well acquainted with the crypto industry He's advised several crypto startups He's been involved on the regulatory and lobbying side Uh he's also himself an avowed libertarian And so I imagine you two probably see eye to eye on many things Where do you anticipate from your conversations you've had with him where you and soon to be Chair Atkins disagree well I mean I worked for him many years ago so I I I see I do see eye to eye with him on on uh many issues You know he's been a he's been a formative influence in my professional career Um I do tend to be someone who if you're going to put SEC commissioners on a

spectrum I tend to be someone who is always thinking um not not looking to regulation as the first solution but looking to regulation as the last solution and thinking about what can we do to um make sure that people have the freedom to interact with one another as they want to without having a government regulation come in and say "No no no you can't do that." um in a very paternalistic way So I'm always going to be on the side of the spectrum that's that's really concerned about constraining Americans liberty Um and and you know I think that I I don't want to speak for Commissioner and I hope soon Chairman Atkins Um but that's always where you're going to find me on

the spectrum And so um you know we'll we'll Do you think you're more to that side than Well I think I'm more to that side than than most people And I'm and I'm upfront about that right i mean I I I love the fact that I have colleagues that I've worked with that have different approaches to things but you're always going to find me on that side of the spectrum because I think I think we the thing that makes this country what it is is that we prize people's right to make decisions for themselves And that is like that is paramount for me And I do you know I understand Congress has given me a mission and I'm I'm working to carry out that mission but I'm always going to be thinking in the you know one one voice

in my head is always going to be saying but isn't there a way that we can do this in a way that's more liberty enhancing so you've got this very classical liberal mentality toward regulation and and the role of government Um what I have to imagine that you've had disagreements with previous commissioners andor you know obviously Chair Gendler How do those disagreements play actually play out is it purely you guys are exchanging barbs via the pen and by descents or is this like uh are you guys pounding the table like help us help us understand in the movie in our heads how much of that is real I'm trying to get stuff changed right if if we can change it that's better I'd rather not have to write a disscent I'd rather we didn't bring that

stupid enforcement action I'd rather you know we just not do it and then I don't have to write a disscent Um and again no this is not intended to be a critique of the staff These are decisions These debates happen at the commission level because it's the commission that's directing how the resources of the agency are spent and what cases we bring and what rules we write I'd rather you know tell people when when we're looking at redefining the the the term exchange and it has very profound implications for decentralized stuff I'd rather tell them you know what don't do this because you're going to destroy something that you don't want to destroy You don't want

to run it out of the US And I'd rather have them say you know what Hester we think you're right and we're not going to do it But I mean I think often what it comes down to is that you can make changes on the margins Um especially when you're in a minority um commissioner spot but you can't you can't figure out which direction the bus is going to drive And so you hang out the side and yell and say "We're going the wrong direction." And it usually doesn't get the driver to turn it around Well I'm frankly very happy that you're the one driving the bus when it comes to crypto policy within the SEC at this point Well I I I appreciate you saying that but I think the the the truth is that there are a lot of really good people

who are at the SEC now who are really good lawyers and they're the ones that are thinking about this stuff and um they're doing the hard work So I think they they deserve the credit Well just to you know give you a free pitch for you know the SEC um is there anything you would say to aspiring securities lawyers who are listening to this episode right now who are thinking about a career in government um well I would definitely say it's a good thing if you want to be a securities lawyer to spend some time in the government to see how it works from the inside I know having worked at a law firm and then coming into the SEC there are just things that you can only learn by being at the SEC And I think the other thing I would say is you know a lot of times people say

Hester why are you even at a government regulator you know you just heard me say like I'm really I I I love maximizing people's ability to to make decisions for themselves So what are you doing sitting in a regulator's chair and I would say I think it's really important to have people who work at regulators who do not think that regulation is the first solution They think it's the last resort when you can't solve things in other ways And so you know I that would be my other pitch is is don't think that you to be in a regulatory spot you have to think regulation is always the answer So speaking of what you're saying about um you know the being on the minority of the commission and not having the power

to be able to move things one of the fears of many people is that okay right now we've got very pro- crypto presidency got the House got the Senate And so now there's this cart blanch to be able to to have this more pro- crypto regime But the pendulum always swings back And when that pendulum swings back it may swing back in a very aggressive way let's say especially given the positioning of this White House let's say uh with respect to digital assets how do you think uh that's going to fare given that so far we still have no laws we still have no rules Obviously there's anticipation that there's going to be some something that's harder to undo but um how much confidence do you have that a subsequent administration or subsequent uh you know SEC commission is

not going to be able to basically take us back to where we were four years ago i mean I think what's going to happen I hope will happen is that even with the temporary things and I mean the short-term things that we can do before there's regulation or legislation that's finalized people will start to be able to experiment and use the technology for to do real things that are interesting And that people who might have a different philosophical bent than I do say "Hey you know what this could actually make our financial markets and our society a better place And so they won't want to undo it because they'll see what it can be used for And I think

this is one of the great travesties of what happened before because we saw all this you know a lot of garbage activity happening in this space And so the people who were trying to regulate it out of existence would say "Well look at all this garbage activity that's happening It's clearly something we should regulate out of existence." And I would say well yeah but they're engaged in that garbage activity because you've told them and that if they try to do things in a way that's legitimate and and and you know forwardinking and and you know they're trying to do things within bounds that make sense they're trying to meet an actual need You come in and you shut them down So there's a reason that everyone's just doing garbage stuff because it seems like that's the less legally risky thing to

do which is perverse And so I hope that in this moment people will focus their attention on doing real stuff and you know making this making the case that there is something here that's worth keeping even if your your your proclivity is to to regulate more heavily than I do So if I can reiterate your answer it's on us as an industry to rise to our full height and actually deliver the value that we keep claiming that we have in store Um I'd like that as an answer Uh I know that we're up on time but just before we close out I'm fascinated to know um what is your crypto content diet what else do you consume besides the

chopping block to keep up with the industry i mean I listen well now I I'm I'm listening to lots of comment letters that come in So that's my that's my biggest crypto diet Um but I I listen to as many podcasts um as I can and they just they run the gamut So if anyone has good recommendations for me um I am not Can you name a few yeah I mean I listen to to on the on the brink I listen to um uh Epicenter I listen to bank That's a deep cut Really yeah I mean that's sometimes that's sometimes too deep for me but I still like it Um okay I they're they're you know if you look at my if you look at my iPhone it's like

basically all uh crypto podcasts of of various sorts So um No kidding Yeah Wow Do you do you read crypto Twitter as well you know I some but I I uh I find that that is sometimes not very productive because it makes it just makes you want to regulate this industry so much more Yeah It's given me a very depressing view of the world Trust me we feel the same way We feel the same way Uh well Commissioner P it's been an absolute pleasure Thanks for coming on and we'd love to have you back again someday when uh we've done something bad and we need to apologize Well let's let's hope that we can that you can have me back on when when we've

done something that you think is good and is actually moving moving things forward Um and I I hope that everyone out there can help us get to a better place So thank you very much for for having me on This has been a a really um fun conversation and helpful for me to do that Thank you Commissioner Thanks everybody [Music]