August 4, 2021 – On Wednesday, SEC Chair Gary Gensler sat down with CNBC’s “Squawk Box” for an exclusive interview to talk about crypto regulation, the rise of retail investors, SPACs, and meme stocks.
The following is the unofficial transcript of CNBC’s interview with Gensler, as provided to and read by PopWrapped:
Andrew Ross Sorkin: Let’s get right to the first big guest of the hour, so many on, on the docket, but joining us right now exclusively to talk about the new, some new ideas about crypto regulation, the rise of retail investors, SPACs, meme stocks and so much more, SEC Chair Gary Gensler. Mr. Chairman, thank you for joining us this morning. Great to see you. You just gave a speech all about cryptocurrency and your intention to protect investors and I want to drill down directly into what that means because I think that there’s a lot of people at both in the investor community and the policy world that want to understand the details of that. You said in that speech that this asset class is rife with fraud, scams and abuse and I want to understand exactly, exactly what you would like to do.
Gary Gensler: So, Andrew, it’s good to be with you. Look, we’re an investment protection agency and right now this asset class, bitcoin and the hundreds of other coins that investors are trading at, is a speculative asset class and if people want to take risk, that’s all right. But what we want to do is provide some of the basic protections against fraud and manipulation. The trading platforms they’re on are not currently under regulatory regime that protects them like they’re trading on the New York Stock Exchange, it just isn’t. And I think those are gaps and I think that’s not good for investors and I don’t think it’s good for the technology.
Do Our Laws Need to Change? Gensler Says Maybe.
AS: So, what has to happen? Do laws need to change? Do you have the authorities that you need?
GG: It’s a great question. We have robust authorities and in some places it’s pretty clear, many of these tokens just given how they were issued and sold and so forth come under the Securities Laws. It’s a facts and circumstances situation but then on the trading platforms as well as the lending platforms, many of those are standing astride regulation. Now if they’re trading securities, they’ve got to come in and I’m encouraging them to come in and let’s talk to them, let’s have a frank discussion, but many of them right now are trying to say, you know, dealing with their lawyers and try to say, well, well, we’re not going to come in and that doesn’t really make good sense for the markets. Now, Congress we’re going to also work with Congress to see if we can fill gaps in the authorities.
AS: When you say you want to work with Congress and fill in these gaps, what are the, what are the authorities that you don’t think you have that you think you need to have in order to ensure this idea of investor protection?
GG: I think that the most critical thing is around where we the public can go to trade or we the public might lend this crypto on a platform and if the platform has both securities which many of these tokens are, but also commodities on the same platform, how to deal with that, how to deal with, along with their sibling agency, one that I was honored to chair the Commodity Futures Trading Commission, and stitching that a little bit together because some of these platforms have both commodities and securities.
AS: You just described some crypto as securities, other SEC chairs prior to–
GG: Many, many tokens are.
AS: Have not. Which ones do you think of as securities and which ones do you think of more in either a commodity basket or some other kind of asset basket?
GG: You know, I, Andrew, I have for your viewers to keep going back to this but it’s pretty clear and the Supreme Court has actually spoken about this many times. If somebody is raising money selling a token and the buyer is, is anticipating profit, profits based on the efforts of that group to sponsor the seller, that fits into something that’s a security and I’m not going to go token by token, you can imagine why I wouldn’t do that. But my predecessor, Jay Clayton who you have on this show often, Jay said it best about three years ago that he really hadn’t seen many tokens that didn’t meet that securities test.
AS But I’m looking at a screen, we have a screen of cryptocurrencies on the list, bitcoin, ether, others. Would, would ripple, for example–
GG: Yeah Andrew, I know you’re gonna try that but that’s, we have, we have an enforcement case and I’m gonna leave it at that, Andrew.
AS: Let me think of, let me ask you a different question which is–
GG: You’re going to try the same question a different way?
AS: No, no, no, no, in the balance between regulation on one end and innovation on the other, where do you think you lie? Because I think that there’s, there’s a large question in this country about where the United States is going to stand long term when it comes to crypto and crypto innovation, you spent three years teaching classes about cryptos so you’re an expert in this topic.
GG: I’m very pro innovation, I think it helps the economy grow, I think more people get access to finance and access to good medicine, access to good jobs. I think I wouldn’t have gone to MIT and been a professor there for three years at the intersection of finance and technology amongst some of the world’s remarkable experts at MIT. So, I count myself as pro innovation, but I think that we also need rules of the road. Automobile came along 100 plus years ago and if we didn’t have rules of the road, Detroit wouldn’t have been able to sell those automobiles, those good factory jobs wouldn’t have been created, those good union jobs wouldn’t have been created without rules of the road that people had confidence and trust in the automobiles. Similarly, we need trust in markets and trust in finance. This innovation, Satoshi Nakamoto’s invention. If it’s going to meet its potential, needs to come within public policy frameworks.
Is Crypto “Anti-Government?” Gensler Doesn’t Think So.
AS: Mr. Chairman, what do you say to those crypto proponents who say that the reason we, we like crypto is because in some ways it’s antigovernment, it’s effectively trying to live outside of the world of regulation, we actually don’t want you to regulate it because that, that actually is part of what gives it its value. It’s almost a self-regulating currency.
GG: Look, it’s, it’s, It’s, it’s part of this remarkable story. Its foundation, story of Satoshi Nakamoto, we don’t even know she, he or they, who they are, is a little off the grid libertarian movement to have a private form of money and we’ve had private monies and public monies in the past. Private monies generally fail over centuries. That part of it is okay and in fact, it’s brought a lot of change, it’s a catalyst to central banks around the globe to think about new payment systems, new approaches to money. But at the same time, we want to ensure that we guard against money laundering, we want to guard against terrorists, in the ransomware, bitcoin is used inside of ransomware the Colonial Pipeline circumstance of this spring that we all lived through. So, I think we can achieve both. So, I’m pro innovation but I’m also pro the basic policy norms of investor protection guarding against illicit activity, financial stability.
AS: And where do you land on the prospect of a bitcoin ETF, this has been a long running question, lots of folks have come to you and to this agency over the last several years now trying to get an ETF approved. What would it take?
GG: Well we already have some funds in the, in the crypto space, bitcoin, the largest it’s been around for about seven years it’s not an ETF, but it’s been around, it’s over $20 billion in size and we have some mutual funds in this space as well that are investing in bitcoin futures from the Chicago Mercantile Exchange so I would anticipate the recent filings in that regard and I look forward to looking at staff and their review of potentially some ETF filings around investing in bitcoin futures on the Chicago Mercantile Exchange around what we call an aircraft that 1940 Act.
Disclosure and Meme Stocks
AS: Want to also talk to you about disclosure and maybe it relates to the function of memes, meme stocks but crypto probably comes under this as well. You now have a whole new generation of, of investors going on TikTok, going on Reddit, going on all sorts of other places, promoting either cryptocurrency or promoting a stock. Where does the SEC see their role in that conversation?
GG: I think it’s, it’s the same it’s, it’s been for decades. It’s trying to foster good debate and dialogue just, just like on this program here about investing in the retail engagement is, is positive, but also to guard against fraud and manipulation and whether that’s from big actors, big hedge funds in the markets or not and also to promote transparency. We are taking a real close look at market structure and I recently started a, you know, engaging on Twitter and to some of those Twitter followers that are writing about dark pools, we are looking very closely at this market structure that so many of our orders, retail public orders are not going to the lit markets but are going to internalizers, going to wholesalers, we’re taking the retail public trades rather than sending them to the stock exchanges.
Joe Kernen: Hey Gary, I, nothing, or SEC Chair, sorry I don’t want to get too familiar–
GG: Either works, either works.
JK: I’m watching bitcoin and, and I’m not tying it to anything that you’re saying but I gotta tell you that having a regulator or a government official just that knows what he’s talking about in a calm manner I think it’s helping allay some fears that you turn on the light when you look into an abyss but my question is, you’re a professor, you know how to teach people, did you ever think of maybe, I don’t know just sending out an email to some of your colleagues in DC, whether it be at the Fed or in Congress or wherever and just saying, “Hey, I’m gonna give a little seminar on what crypto actually is.” Have you thought about doing that because I see things from people in a position to do things that show a, almost a zero lack of understanding of what we’re dealing with here, well why don’t you offer to do that, to educate some of, some of your associates down in DC.
GG: Well, you’re kind. I learned every day from talking to my colleagues.
JK: What, you learn what–
GG: Let me just say, I’ve had wonderful one on one discussions with both senators and members of the House sometimes in group sessions. I don’t want to share but I complimented–
JK: Senators and treasury secretaries–
GG: And asked for this, for a discussion on crypto.
JK: Fed chairs, treasury secretaries, senators, everywhere then.
GG: Secretary Yellen convened a terrific meeting where we talked about stable value coins and my colleagues, Chair Powell was in the room and Jelena McWilliams and Chair Behnam. I mean we were there, the President’s working group, we had a really engaged discussion that she chaired.
JK: Alright, there’s hope.
Retail Investors and Governance Voting
AS: Wanted to ask you two other quick questions while we still have you. One relates to retail investors and one of the conundrums that we’ve, we’ve seen now over the last several weeks and months is that they don’t seem to vote when it comes to governance, it becomes, it’s become a very challenging circumstance. So, you have a real agency problem and I’m thinking by the way of Adam Aron not being able to get enough votes from his AMC shareholders, the apes, and then Lucid needing extra time to get its shareholder vote for its SPAC. Do you think of that as a problem?
GG: I think of it as shareholder democracy that we, the owners of companies, I mean in my current role I’m not voting any shares but we that the shareholders of corporate America have to be able to engage and do that in a way that’s, of course, efficient and effective to express our views. So, I do think about it a lot and staff is making recommendations about our both the, the proxy plumbing and on the shareholder voting.
AS: But how concerned are you the fact that people just don’t vote. I mean, by the way, which is a feature of democracy but, but maybe a problem in the context of a business.
GG: So it’s, what we’re looking at is both making it more efficient and some of that is on the proxy plumbing side and something that’s called universal proxy making it a little easier to compare the votes and so forth and the ballots. But you’re right, it to make it more efficient and make it more available.
China and Disclosure: “I Am Concerned”
AS: Mr. Chair, we have literally 30 seconds but very quickly, China, China stocks. You, you, you’ve come down with some new rules about disclosures, how concerned are you about the books in China and whether they’re accurate or not?
GG: I am concerned. I think that for 17 years since Sarbanes-Oxley, a bill to reform accounting in America went into being, that we have not been able to as Americans through an organization called the Public Company Accounting Oversight Board that we the SEC oversee, we have not been able to audit the auditors of Chinese related issuers. Number two, I’m concerned that the retail public doesn’t yet fully understand that most of these companies are not Chinese companies, they’re buying a Cayman Islands company that at best has a service arrangement with the real company in China and those arrangements, those service arrangements, the Chinese authorities have in the last few weeks we’ve seen it and may in the future just say, you know, we don’t really like the way these arrangements are and so there’s a lot of political risk in addition to the accounting and books and records risks you’re just mentioning.
AS: Mr Chairman, we appreciate you joining us this morning on so many topics, hope to talk to you again. We do have some news just crossing ADP just coming out Becky and so I’m going to send it over to her. Gary, Gary Gensler. Thank you again.
Feature image courtesy of CNBC.
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