Hester M. Pierce, a pro-crypto Commissioner at the United States Securities and Exchange Commission (SEC), has expressed her displeasure at the agency’s handling of the Telegram case. Earlier this week, the Commissioner gave a speech where she explained that neither side came out of the scenario with a win — and it is even worse off for the crypto industry at large.
Telegram Bows Out of SEC Feud
Pierce, who has drawn the moniker “Crypto Mom” for her pro-crypto views, gave her speech while at the Blockchain Week Singapore. There, she explained that regulators are to ensure a safe and enabling environment that fosters innovation. However, she didn’t particularly see how the outcome of the Telegram case would have helped with the latter.
Telegram and the SEC were involved in what appears to be the crypto space’s landmark legal battle for 2020, viz a viz regulatory approval. The mobile messaging company had conducted an Initial Coin Offering (ICO) years back, raising $1.7 billion in two separate sales to develop its GRAM tokens and Telegram Open Network (TON) blockchain project.
Telegram was ready to launch both products in October 2019. However, barely a month to the launch, the SEC hit it with a lawsuit, claiming that it had violated the Securities Act of 1934. The agency accused Telegram of having sold unregistered securities and asked that it pull the plug on the token sale entirely.
Both parties entered a months-long legal dispute, which revolved particularly around whether the SEC had the right to police the GRAM token. However, Telegram eventually threw in the towel in May, announcing in a blog post that it would be withdrawing all claims.
The final judgment on the case came in June. A judge ordered the mobile messaging giant to pay investors $1.2billion in compensations for the failed blockchain project.
Not a Win for Innovation
While the SEC might have seen this as a win, Pierce explained that she was less convinced. In part, she explained that while regulators should punish rule violators, integrity demands that this should only be done when the violators break a “clearly articulated statute or rule.”
Pierce also referred to the SEC’s mission of protecting investors and asked whether the agency had managed to meet this objective in the Telegram case. She added:
“Who did we protect by bringing this action? The initial purchasers, who were accredited investors? The members of the public…? Would-be innovators, who will now take additional steps to avoid the United States?”
Pierce’s criticism also touched on the possibility of the SEC overstepping its jurisdictions. After the Telegram case resolution, company chief executive Pavel Durov publicly slammed the agency for trying to dictate to global markets.
As Pierce put it, the SEC will have to remember that it has boundaries to its enforcement. It also needs to recognize that its regulatory approach isn’t the only way.
This isn’t the first time that the Commissioner is criticizing the SEC’s hard-line approach to regulation. In 2018, she accused it of stifling innovation in the crypto space and making it difficult for new players to thrive. While the SEC might want to believe that it is protecting investors, many have questioned its methods. The Telegram case only brings additional credence to these concerns.