Hester Peirce: The Peanut Butter and Watermelon of Financial Surveillance 🍉🥜

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Law and Ledger is a news segment focusing on crypto legal news, brought to you by Kelman Law – A law firm focused on digital asset commerce.

The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.

Hester Peirce’s Peanut Butter & Watermelon Speech

Ah, SEC Commissioner Hester Peirce, the culinary philosopher of finance! Her “Peanut Butter & Watermelon” speech-delivered on a fateful day in August 2025 at U.C. Berkeley-serves up more than just a delightful snack metaphor. It’s a feast for thought, revealing the age-old struggle between the shiny promise of disintermediated technologies and the clunky machinery of financial surveillance that insists on policing our every transaction like a nosy neighbor peeking through the curtains.

The Digital Promise of Disintermediation

Peirce begins with a nostalgic nibble on her grandfather’s peculiar snack-watermelon slathered in peanut butter. Who knew that such a bizarre combination could illustrate a grander truth? Automating processes (i.e., kicking intermediaries to the curb) can keep our secrets safe and restore our agency, while those pesky human intermediaries are just waiting to snoop around.

In this brave new world, blockchain, zero-knowledge proofs, smart contracts, and other cryptographic wizardry democratize finance-allowing us to lend, socialize, and send money without the gatekeepers. It’s like a financial buffet where everyone can feast without a bouncer at the door!

Surveillance and the Third-Party Doctrine

But lo and behold! The old legal doctrines rear their ugly heads, standing in stark contrast to this digital utopia. Under the third-party doctrine, once you hand over your data to a third party-be it a bank or your phone provider-you might as well wave goodbye to your Fourth Amendment privacy protections.

This was illustrated in the grand saga of Smith v. Maryland, where the Supreme Court declared that if you voluntarily share your secrets with third parties, you can’t expect to keep them under wraps. Sure, it made sense back when we had human telephone operators, but in the age of self-dialing? The Court was not inclined to change its tune.

Today, this third-party doctrine fuels the Bank Secrecy Act (BSA), compelling financial institutions to collect data like it’s going out of style through Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). The result? Financial institutions morph into quasi-law enforcement agencies, churning out millions of reports with little idea of what to do with them.

Liberty v. Security

The SEC, not to be outdone, has its own surveillance contraption known as the Consolidated Audit Trail (“CAT”). This requires brokers to record every little detail of customer and order event data for equities and options, from the moment an order is placed to its final execution. It’s like having a thousand SEC employees peering over your shoulder, scrutinizing every trade without a hint of suspicion.

As Peirce warns, such sledgehammers of surveillance resemble a dystopian nightmare. She challenges us to ponder: Are these sweeping surveillance systems really necessary, or are they eroding the very liberties that define us as Americans? Quoting Justice Brandeis, she reminds us to be vigilant: “to be most on our guard to protect liberty when the government’s purposes are beneficent.”

Critics like Katie Haun point out that even the most mundane transactions-from Venmo payments to hospital bills-generate traceable “data points,” creating an all-seeing system that watches even the most innocent among us. Talk about Big Brother!

Peirce offers a glimmer of hope: it’s high time we rethink the third-party doctrine and modernize the BSA and similar regulations. Echoing the Treasury’s own efforts to review AML rules for investment advisers, she emphasizes the need for empirical evaluation-are all these reports genuinely actionable? And is the government even using its financial watchdogs effectively?

What It Means For You

For clients navigating the treacherous waters of innovation and regulation, these issues translate into crucial, nuanced considerations.

  • Designing for Privacy by Default: New architectures-token privacy, programmable compliance, or differential privacy mechanisms-can help satisfy AML obligations while minimizing unnecessary data capture. Because who wants to be the data hoarder?
  • Advocating for Smarter Reporting Thresholds: Industry stakeholders should rally for reforms that streamline SAR/CTR filing frameworks, focusing on truly suspicious activity and reducing the clutter. Less is more, right?
  • Strengthening Fourth Amendment Protections in FinTech: As courts revisit doctrines like Carpenter v. United States and Smith v. Maryland, there may be room to extend wire-level protections into financial domains, even for third-party contexts. Let’s keep our wires safe!
  • Helping Clients Navigate Compliance with Liberty in Mind: Organizations should conduct thoughtful cost-benefit analyses of data collection-not just for regulatory compliance, but for preserving customer trust and freedoms. Because trust is the new currency!

Commissioner Peirce’s speech artfully juxtaposes quirky childhood snacks with complex legal doctrines, challenging regulators, lawyers, and technologists to recalibrate the balance between privacy and surveillance in financial systems. As crypto-native counsel, Kelman PLLC stands ready to guide clients striving for compliance and constitutional integrity in a world hungry for disintermediation.

Kelman PLLC continues to monitor developments in crypto regulation across jurisdictions and is available to advise clients navigating these evolving legal landscapes. For more information or to schedule a consultation, please contact us.

This article originally appeared at Kelman.law.

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2025-08-29 07:10