SEC Commissioner Hester Peirce Provides Some Insight Into ENT Ban

Yesterday, the United States Securities and Exchange Commission (SEC) made headlines by temporarily banning the trading of two crypto securities, including Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF). Today, SEC Commissioner Hester Peirce clarified what that suspension means on Twitter.

In a tweet from earlier today, Hester Peirce sought to add “some possibly helpful context” for yesterday’s decision by the SEC to ban the two crypto securities.

Some possibly helpful context for yesterday's trading suspension (https://t.co/nTvSuWq0cE): note 72 of the SEC's 2015 Bravo decision explains what can happen following a 10-day suspension. Full decision: https://t.co/icuXlLhrBB pic.twitter.com/XcMFDJSrPP

— Hester Peirce (@HesterPeirce) September 10, 2018

To add context, Peirce referenced a similar situation from 2015 when the SEC temporarily banned a product from Bravo Enterprises Ltd.

In the 2015 decision, the SEC chose to ban trading of shares in Bravo Enterprises Ltd. during the height of the Ebola crisis because of an unclear relationship between “the company’s business prospects and the Ebola crisis.”

In that case, Bravo Enterprises Ltd. was allegedly selling fraudulent ebola treatments. The SEC announced a temporary ban on trading of company shares while the company fixed its marketing and investor communications to make it clearer.

After fixing their side of things, trading in Bravo Enterprise Ltd. shares re-opened.

In the Bravo case, the SEC initially denied a petition to overturn the ban, saying:

“…petition to terminate the trading suspension is denied because the Commission remains of the opinion that the public interest and the protection of investors required the trading suspension.”

Bravo’s shares dropped 90% in value the day the suspension was lifted.

What does this have to do with crypto? Why is Peirce tweeting this today?

Well, Peirce is posting the Bravo decision as a sign of what could happen with the crypto securities that were banned yesterday. In the 2015 case, the SEC announced a 10 day ban on the securities, then lifted that ban after Bravo began to market itself more honestly:

“Unsolicited trading in Bravo’s securities became permissible again as soon as the suspension ended, subject to the other requirements of the securities laws, including the antifraud provisions.”

The name Hester Peirce may sound familiar: Peirce was the SEC commissioner who dissented from her colleagues earlier this summer over their decision to deny another bitcoin ETF. Peirce disagreed with the SEC’s reasons for the ban. Since that dissention, Peirce has been seen as one of the more crypto-friendly SEC commissioners.

Hester Peirce’s tweet shows that the SEC has enacted similar temporary bans in the past. The SEC is in charge of enforcing securities regulations in the United States. In pursuit of that goal, the organization will periodically ban trading of a particular asset until the owner of that asset begins to abide by securities regulations.

That means trading in the securities Bitcoin Tracker one (CXBTF) and Ether Tracker One (CETHF) will likely be reinstated on September 20, 2018, as announced in the original SEC order – assuming the ETNs change to abide by SEC regulations.

Here’s the original language from the 10 day ban of the two ETNs:

“The Commission temporarily suspended trading in the securities CXBTF and CETHF because of confusion amongst market participants regarding these instruments. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).”

Here’s the other important thing to note about the announcement: the ban will only be lifted if things change with CXBTF and CETHF. The SEC temporarily banned trading in the two securities because of concerns about compliance with securities laws. If the two securities cannot become compliant during the 10 day ban, then the ban will likely be upheld:

“…at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule., he should not enter any quotation but immediately contact the [SEC].”

Ultimately, trading in CXBTF and CETHF is scheduled to resume on September 20, 2018, assuming that the issuer meets SEC requirements. Peirce’s tweet was a reference to a similar 10 day ban from 2015, when a company selling fraudulent ebola cures was hit with a temporary trading ban. In that case, the company’s shares fell 90% the first day trading resumed.

Will the bitcoin and Ether ETNs fall 90% in value the day trading is resumed? Will the ETNs change to abide by SEC regulations? The whole situation is a bit of a mess right now. We’ll keep you posted.

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