SEC’s Hester Peirce: X Hacker Seized on ‘Problematic’ ETF Approach

The SEC sparked unnecessary anticipation for a Bitcoin ETF, Commissioner Hester Peirce said

By: André Beganski

January 23, 2024

The Securities and Exchange Commission is determined to figure out how its X account was compromised this month in the run-up to the approval of several spot Bitcoin ETFs. But the blunder can’t be placed solely on bad actors, according to SEC Commissioner Hester Pierce.

America’s financial watchdog must assume some responsibility for the debacle, Peirce told Coinage in a Monday interview. While the compromised post — which falsely announced spot Bitcoin ETFs had won regulatory approval a day early — calls the agency’s operational security practices into question, Peirce said the situation shouldn’t have been a market-moving opportunity in the first place.

“We wouldn't have been in this place where someone would even think to do something like that, or where it would be worth the time of someone to do something like that, [if] we hadn't built up so much attention on these approvals,” she said. “I think, in this instance, we really created that problem.”

The false post from the SEC’s X account caused $90 million in liquidations as the fake news spread and Bitcoin later fell on the regulators’s mea culpa. The lapse in the SEC’s social media security then sparked an outcry among some lawmakers on Capitol Hill, who accused the agency of holding companies it regulates to security standards it failed to abide by itself.

SEC Commissioner Hester Perice joined Coinage for an exclusive interview on the internal power struggle over regulating crypto at the SEC.
SEC Commissioner Hester Perice joined Coinage for an exclusive interview on the internal power struggle over regulating crypto at the SEC.

On Monday, the SEC said it’s still working with a litany of law enforcement agencies to get to the bottom of Jan. 9, but also found that multi-factor authentication (MFA) was disabled on the SEC’s X account this past July. Due to issues accessing the account, the function was disabled by X Support at the SEC’s behest, but the feature wasn’t turned back on until after the SEC’s X account was compromised this month, the regulator said in a written statement.

The agency fell victim to a SIM swap attack that’s all too familiar in crypto, the SEC said. Allowing an unauthorized party to gain access to a victim’s phone number, the tactic has been used to clean out crypto accounts on centralized exchanges. The SEC said it’s still investigating how the compromiser knew the SEC’s X account was tied to the phone number targeted.

The SEC could have saved itself the trouble if it had treated spot Bitcoin ETF hopefuls like any other applicant of an exchange-traded product, Pierce said. Dragging its feet for a decade before spot Bitcoin ETFs were approved, she said the SEC shouldn’t have put itself in a position where so much suspense defined the final stretch.

“We could have avoided [it] by just using our regular approach of dealing with exchange-traded product applications,” she said. “I do think that's quite problematic for us to be part of building so much anticipation around one regulatory decision deadline.”

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