"A few of us really were digging in," Szczepanik said, referring to her early involvement in the field. She said she recalled reading a crypto-project white paper and thinking "if this ever actually gets deployed into the universe, then the SEC will be very busy."
Her early interest has made Szczepanik among the better-known regulators to crypto insiders. There are also indications it may have led to unusual attention. While it could be a coincidence, months before Szczepanik took her new SEC job, someone spray-painted "ICO" on her apartment building’s mailbox, according to a person familiar with the incident.
Szczepanik doesn’t have the typical profile of a government securities lawyer. Besides her interest in Japanese martial arts, she holds an engineering degree and was accepted to a University of Pennsylvania doctoral program.
The virtual-currency industry’s reluctance to engage hasn’t gone unnoticed at the SEC’s highest levels. Republican Commissioner Hester Peirce said in an interview that she’s heard that people were hesitant to approach the agency because it “meant going through enforcement.”
William Hinman, a former Silicon Valley lawyer who runs the SEC’s corporation finance division that Szczepanik joined in June, said he’s hopeful her transition will lead to changes. A persistent SEC frustration is that firms aren’t registering their ICOs with the regulator as securities, despite threats of enforcement actions.
"Early days in this space, a lot of the activity just didn’t come into any other division other than enforcement," Hinman said. "Folks weren’t coming to us and saying, ’Oh, I have a security, let me register it with corporation finance.’"
Hinman himself got attention from crypto investors last month when he gave a lengthy speech on what makes a digital asset a security. Deep into his remarks, he said that he didn’t think it made sense to subject Ether trades to federal securities laws. The second-most valuable digital currency surged 12 percent after his comments.
Those kinds of price moves, and growing interest among hedge funds and other traders, has encouraged more traditional financial firms to dabble in cryptocurrencies. Intercontinental Exchange Inc., the owner of the New York Stock Exchange, has been working on a trading platform that would let investors bet on Bitcoin, two people familiar with the matter said in May. And Goldman Sachs has been preparing a Bitcoin trading business.
The presence of established, regulated players could help pull crypto out of the shadows, giving authorities better insights into what’s going on. But if the market remains opaque, the SEC might get more aggressive, Szczepanik warned.
“What we’re hoping is people will want to come into compliance,” she said. “If there’s no effort to do that, if instead folks choose to ignore applicable laws, we might take a different tack.”