What
is
the
point
of
a
$275,000
fine?
This
week,
crypto
OG
Erik
Voorhees’
exchange
ShapeShift
settled
charges
with
the
U.S.
Securities
and
Exchange
Commission
(SEC)
over
alleged
securities
law
infractions.
The
exchange,
which
decentralized
its
ownership
structure
by
launching
a
DAO
that
oversees
operations
in
2021,
agreed
to
pay
a
$275,000
fine
to
settle
the
charges,
neither
agreeing
nor
denying
guilt.
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is
an
excerpt
from
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The
settlement
is
a
curious
case,
raising
more
questions
than
it
answers
—
and
not
just
because
two
of
the
five
SEC
Commissioners,
Hester
Peirce
and
Mark
Uyeda,
wrote
a
scathing
rebuke
of
the
outcome.
Namely
the
settlement
fails
to
state
whether
the
way
ShapeShift
currently
operates
is
legal,
and
forced
a
no
longer
operational
business
to
register
as
a
“dealer”
(i.e.
“any
person
engaged
in
the
business
of
buying
and
selling
securities”).
Between
2014
and
2021,
ShapeShift
bought
cryptocurrencies
and
sold
them
to
clients,
making
money
off
of
the
spread.
While
the
SEC
said
that
this
“vending
machine”-like
business
model
was
effectively
ShapeShift
trading
against
its
clients,
the
commission
did
not
“allege
any
harm,”
Peirce
and
Uyeda
wrote
in
a
dissenting
opinion.
“It
is
entirely
unclear
how
ShapeShift
was
to
discern
that
the
Commission
would
consider
crypto
assets
generally—and
any
crypto
asset
in
particular—a
security
in
the
form
of
an
investment
contract.
Even
now,
ten
years
on,
it
is
hardly
more
discernible,”
the
dissenting
commissioners
write.
This
is
par
for
the
course
for
the
SEC
under
Chainman
Gary
Gensler,
who
has
taken
the
view
that
nearly
all
cryptocurrencies
are
securities
and
therefore
fall
under
its
purview.
Not
only
was
the
agency
unspecific
about
which
assets
ShapeShift
illegally
listed,
but
it
failed
to
explain
its
reasoning.
“We
respectfully
request
that
the
Commission
show
its
work,”
Peirce
and
Uyeda
said.
To
be
fair,
in
the
past,
the
SEC
has
stated
that
specific
assets,
including
SOL,
XRP,
Telegram’s
TON,
Algorand’s
ALGO
and
dozens
and
dozens
of
other
tokens
in
its
various
lawsuits
against
crypto
companies
like
Coinbase,
Kraken
and
LBRY.
See
also:
Coinbase
vs.
the
SEC
Debates
Beanie
Babies
|
Opinon
But,
as
many
industry
participants
have
said,
the
SEC
has
also
made
it
incredibly
difficult
to
actually
register
a
token
as
a
security
or
a
company
to
register
as
a
broker.
Notably,
Voorhees
personally
settled
with
the
SEC
in
a
decision
that
does
not
recognize
ShapeShift’s
governance
token
FOX
to
be
a
security.
Pierce
and
Uyeda
wrote
out
a
dramatized
scene
showing
how
these
hypothetical
conversations
tend
to
work:
Future
ShapeShift
(“FSS”):
Hello,
I
would
like
to
register
as
a
dealer.
FSS:
Because
I
think
some
of
the
assets
that
I
plan
to
deal
might
be
deemed
at
some
point
by
the
SEC
to
be
securities.
SEC:
Which
ones?
FSS:
I’m
not
sure
because
I
can’t
really
understand
what
criteria
you
use
to
decide
whether
a
token
offering
is
a
securities
transaction
and,
if
it
is,
whether
the
token
that
was
the
subject
of
the
investment
contract
remains
a
security
in
secondary
market
transactions.
SEC:
Well,
if
you
don’t
know
whether
you’re
dealing
in
securities,
you
can’t
register.
And
by
the
way,
if
some
of
the
assets
you’re
dealing
in
are
not
securities,
you
also
can’t
register.
FSS:
So
can
you
help
us
think
through
which
assets
are
securities?
SEC:
No.
We
suggest
that
you
read
the
2017
DAO
report,[3]
and
it
will
all
be
clear
to
you.
You
can
also
look
at
our
enforcement
actions
if
you
want.
FSS:
I
read
it,
and
I’ve
read
about
your
enforcement
actions.
I
still
have
questions.
SEC:
Hire
a
lawyer.
FSS:
I
did,
and
the
lawyer
has
even
more
questions.
SEC:
Sorry,
we
cannot
help
any
more
than
we
already
have.
We
don’t
give
legal
advice.
Not
only
is
the
order
odd
in
its
lack
of
specifics
and
weak
penalty,
but
it
also
targets
an
innovative
company
that
has
previously
tried
to
stay
aboveboard.
See
also:
Coinbase
Tried
to
Rein
in
a
Renegade
SEC
|
Opinion
In
2018,
for
instance,
the
exchange
decided
to
implement
know-your-customer
(KYC)
protections
and
delist
privacy
tokens
including
monero
and
zcash
in
a
response
to
anti-money
laundering
(AML)
concerns
raised
in
a
Wall
Street
Journal
report
that
alleged
ShapeShift
had
processed
over
$9
million
from
suspected
criminal
entities
over
a
two-year
period.
It
is
one
of
the
oldest
running
exchanges,
and
largest
to
date
to
decentralize
ownership
to
FOX
holders.
Industry
publication
Protos
reported
that
the
settlement
could
be
part
of
a
long
running
strategy
to
dish
out
“slaps
on
the
wrist”
to
crypto
companies,
building
precedent
in
case
history
for
future
or
ongoing
lawsuits.
Whatever
the
case,
Peirce
and
Uyeda
might
have
the
best
take:
“Cases
like
this
do
not
protect
investors;
they
intimidate
innovators
and
entrepreneurs.”
