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Commissioners Hester Peirce and Elad Roisman call for clear rules on when digital tokens are securities.

The Securities and Exchange Commission on Wednesday settled charges with the owner of a once-popular cryptocurrency website, Coinschedule.com, for promoting initial coin offerings without disclosing the compensation it received from issuers, a move that instigated public protest from regulator's two Republican commissioners.

"Coinschedule presented potential investors with seemingly independent profiles about token offerings when in fact they were bought and paid for by token issuers," said Kristina Littman, chief of the SEC Enforcement Division's Cyber Unit in a press release . "The securities law prohibiting touting securities for compensation without appropriate disclosures to investors is clear and longstanding."

Hester Peirce and Elad Roisman, the SEC's two Republican commissioners protested this action because the SEC didn't identify which of the more than 2,500 digital tokens the website promoted were actually securities.

"We agree with our colleagues that touting securities without disclosing the fact that you are getting paid, and how much, violates" U.S. securities law, the two wrote in a public statement following the order. "We nevertheless are disappointed that the Commission's settlement with Coinschedule did not explain which digital assets touted by Coinschedule were securities."

The two commissioners added that the omission was "symptomatic of our reluctance" to give entrepreneurs and investors clear rules as to whether a specific digital token counts as a security or not.

The SEC abides by a set of conditions known as the Howey test, developed by the Supreme Court in 1946, which states that an instrument is considered a security when it's "a contract, transaction or scheme whereby a person invests his money in a common enterprise, and is led to expect profits solely from the efforts of the promoter or a third party."

The relevant question for cryptocurrencies is whether they are in fact a "common enterprise." William Hinman, the SEC's former director of the Division of Corporate Finance said in a 2018 speech that bitcoin and ether developers were not centralized enough for those currencies to meet this definition. But this speech is not formal guidance, and Hinman no longer with the SEC.

Commissioner Peirce in particular has long been an advocate for the SEC creating bright-line rules on the issue so that entrepreneurs can create and disseminate new digital assets with firm knowledge of whether their actions will be considered a violation of securities law. She said in April at MarketWatch's Investing in Crypto virtual event series that the lack of clear rules is may be pushing would-be entrepreneurs out of the U.S.

"I think we're certainly falling behind the curve," Peirce said. " "We've seen other countries take a more productive approach to regulating crypto. Our approach has been to say no and tell people wait...we need to build a framework that is appropriate for this industry."