Speaker 1: The current chairman of the SEC is Gary Gensler, who
Speaker 1: headed the CFTC under President Obama. Gary is a former
Speaker 1: partner at Goldman Sachs, a former professor at M I T,
Speaker 1: and a very well recognized expert on the financial markets.
Speaker 1: I had a chance to sit down with him recently
Speaker 1: to talk about some of the key issues facing the SEC,
Speaker 1: including how to regulate cryptocurrencies and how to deal with
Speaker 1: the enormous new technologies affecting our markets. Your main principle
Speaker 1: though the SEC, as I understand it, is fairness and
Speaker 1: disclosure and equity. Everybody is treated the same. Everything is fair,
Speaker 1: everything is disclosed, and do not rate the relative merits
Speaker 1: of investments. That's the principle, right, yeah, I mean we
Speaker 1: we talk about it as a three part mission investor protection,
Speaker 1: which embodies much of what you just said, facilitating capital
Speaker 1: formation companies that are raising money entrepreneurs, but also those
Speaker 1: of us who are homeowners and take out a mortgage.
Speaker 1: We are issuers as well. We're raising money. And then
Speaker 1: that which is in the middle fair, orderly and efficient
Speaker 1: markets investors, capital formation, and then the markets in the middle.
Speaker 1: So since the Great market recession, the Great Recession of
Speaker 1: two thousand and eight and two thousand nine, at which
Speaker 1: time you were then the head of the CFTC, which
Speaker 1: regulates commodities and futures. Since that time, the markets have
Speaker 1: changed dramatically because of technology developments. Are you thinking that
Speaker 1: the SEC and other regulators have been able to keep
Speaker 1: up with all these technological changes. It's it's a real challenge, David,
Speaker 1: for across our government to stay up with the remarkable innovations.
Speaker 1: The last time we updated our rules for the stock markets,
Speaker 1: the equity markets was in a significant way, was in
Speaker 1: two thousand and five, and sixteen years later. Those rules
Speaker 1: that may have been fit for purpose, then are they
Speaker 1: really ready for the twenties? And nearly half of our
Speaker 1: stock market does not trade in the transparent what's called
Speaker 1: lit exchanges like the New York Stock Exchange or NASTAC,
Speaker 1: but they're in dark polls or their host salers. So
Speaker 1: I've asked staff, well, what can we do to update
Speaker 1: these markets for thees given the rapid change of technology.
Speaker 1: So let's talk about that particular change. You have said,
Speaker 1: and others have said that the markets are supposed to
Speaker 1: be equitable and fair to everybody, but so much on
Speaker 1: the markets are now controlled. Some people say by limited
Speaker 1: number of market makers who may not give everybody the
Speaker 1: fairest price. That's the argument that some people make. How
Speaker 1: are you going to deal with that? And is it
Speaker 1: a big concern or is it a modest concern? Well, um,
Speaker 1: it's it's important I think an agency like ours to
Speaker 1: constantly bring up today our rule set, So I would
Speaker 1: say it is a central concern if I can use
Speaker 1: a different word than you did about our regular investors.
Speaker 1: And we've seen an increase of retail UH participation, but
Speaker 1: are regular investors as well? Is the big institutions having
Speaker 1: efficient markets? And are they getting what's called best execution?
Speaker 1: We wrote a rule years ago about that you're supposed
Speaker 1: to get best execution out of your broker. And is
Speaker 1: that happening when, as you said, a few wholesalers are
Speaker 1: buying the order flow and and a lot of that's
Speaker 1: getting concentrated around a few host salers. Let's talk about
Speaker 1: some other technology changes since you were lasting government. One
Speaker 1: of them is something called us spack um uspac is
Speaker 1: a new device to enable somebody to go public without
Speaker 1: going through the normal I P O process. Does that
Speaker 1: offend you that people are going around the I P
Speaker 1: O process you have at the SEC or do you
Speaker 1: say okay as long as some disclosure occurs. But I
Speaker 1: think that uh we we at the SEC are committed
Speaker 1: to be technology neutral and innovations uh like special purpose
Speaker 1: acquisition companies, which actually have been around for quite some time.
Speaker 1: It's just they took off in the last two years
Speaker 1: and and there's been hundreds of them, as you know,
Speaker 1: and well over a hundred billion dollars raised through these
Speaker 1: fundamentally blank check companies. UM, what we're looking at is
Speaker 1: how do we guard the public not just in disclosure,
Speaker 1: but also there's very significant fees the sponsors generally take
Speaker 1: about as a promote. They have two years to invest
Speaker 1: the money. Uh. They're encouraged to invest the money because
Speaker 1: they want to get that uh. And then what sort
Speaker 1: of conflicts does that set up? What due diligence are
Speaker 1: they doing when they're buying those target companies. Having said that,
Speaker 1: we're looking at how we can bring some greater disclosure
Speaker 1: transparency and deal with some of those inherent conflicts. Now,
Speaker 1: there's another issue that has arisen, which is called gamification,
Speaker 1: which is to say people are making a game out
Speaker 1: of trying to buy stocks, and very young people are
Speaker 1: caught up in it. You have very very on day traders.
Speaker 1: Are you worried about this phenomenon? So, if I could
Speaker 1: take just a step back, we live in the ties
Speaker 1: in a new digital age where where applications on our
Speaker 1: phones can use massifcial amount of data and then predict
Speaker 1: our behavior. And this is true outside of finance and
Speaker 1: inside of finance. Outside of finance, the streaming apps figured
Speaker 1: out a while ago that I'm kind of a romcomp
Speaker 1: type of guy. Okay, that's figured out now in this space,
Speaker 1: whether it's a robo advisor or a brokerage app, if
Speaker 1: they figure out by giving you David Rubinstein a certain signal,
Speaker 1: a certain color, a certain prompt of behavioral prompt that
Speaker 1: you might trade more or you might buy a higher
Speaker 1: revenue product for them, there in lies and potential conflict.
Speaker 1: What do we do when the digital algorithms are maximizing
Speaker 1: for the company's revenues rather than our return earns. And
Speaker 1: so we're trying to think that through. It's not just gamification,
Speaker 1: it's a little bit more than that. It's whether there's
Speaker 1: a conflict between the app and our investment returns. CEOs
Speaker 1: today are more outspoken than they used to be about
Speaker 1: public policy issues. Is that something that the SEC thinks
Speaker 1: is a good thing? Or should CEO is just worry
Speaker 1: about the share price and earnings and things like that,
Speaker 1: or should they comment on voting rights or climate change things?
Speaker 1: What do you think CEO should do? We hear from
Speaker 1: market participants. That helps us be better at what we do.
Speaker 1: We hear from advocates all across the market and all
Speaker 1: across the political spectrum. That helps the five of us
Speaker 1: in a commission to hear from the public. So, whether
Speaker 1: it's a chief executive officer or it's somebody who's buying
Speaker 1: the first fifty shares of stock in a company, do
Speaker 1: we benefit from hearing from folks? And and my my
Speaker 1: call list are made public on a monthly basis, you'll
Speaker 1: see that some CEO is getting get in touch. They
Speaker 1: want to They want to say something about Maybe it's
Speaker 1: about equity market structure, maybe it's about climate risk disclosure.
Speaker 1: Maybe it's about what we talked about earlier about spacks
Speaker 1: or crypto. And we don't have to necessarily agree. We
Speaker 1: try to when we disagree, to disagree agreeably. As my
Speaker 1: uncle Norman used to say, UM, but but it's helpful
Speaker 1: to hear from UH people in the markets. So today,
Speaker 1: what would you like Most people who are not knowledgeable
Speaker 1: about the SEC but are watching this interview, they want
Speaker 1: to learn a little bit. What would you like them
Speaker 1: the most know about the SEC? Markets work best when
Speaker 1: we have rules of the road. I think that those
Speaker 1: of us at the SEC are entrusted UH to ensure
Speaker 1: that the markets is the best they can are, free
Speaker 1: of fraud, free of manipulation, that you as investors get
Speaker 1: to decide what risk you take. Now, many companies that
Speaker 1: are based in China are now traded I think in
Speaker 1: the New York Stock Exchange or NASDAC, but they are
Speaker 1: not subject, as it turns out, to accounting oversight in
Speaker 1: the same way that American companies are. Are you worried
Speaker 1: about that? Is there anything you think you can do
Speaker 1: about that? Was? You and I are both Baltomore boys,
Speaker 1: so we both remember fondly Paul Sarbans, who was our
Speaker 1: senator here in Maryland for well I think thirty years
Speaker 1: and and Paul and Republican Mike Ox that came together
Speaker 1: in two thousand and two. President UH George W. Bush
Speaker 1: worked with them when something called the Sarbanes ox The Act,
Speaker 1: and there was another basic bargain. That basic bargain was,
Speaker 1: if you wanted to raise money from the public, not
Speaker 1: only did you have to provide financials that were audited,
Speaker 1: but your auditor had to be subject to inspection. Basic bargain.
Speaker 1: So to your story is, nearly twenty years later, companies
Speaker 1: from fifty plus jurisdictions have allowed their books and records
Speaker 1: to be looked at, inspected in essence the auditors to
Speaker 1: be audited. Two jurisdictions have not, China and Hong Kong.
Speaker 1: And so Congress last year said, all right, enough is enough,
Speaker 1: and they set a three year clock in place, a
Speaker 1: three year clock year one that if we can't work
Speaker 1: this out, if the auditing firms of these China related
Speaker 1: companies don't open up their their work papers, then what
Speaker 1: Congress said, then we have to suspend trading. That these
Speaker 1: companies should not be able to access US markets through
Speaker 1: our stock exchanges in the like. So you're too modest
Speaker 1: to point this out, But Senator starbins principal staff person
Speaker 1: drafting this Starbins Oxley was Gary Gensler. So you know
Speaker 1: this all pretty well, right, Yeah, there were there were
Speaker 1: other involved as well, and I learned working for a senator.
Speaker 1: I mean it was all there. If it went well,
Speaker 1: it was theirs. But if it went pear shaped, of
Speaker 1: course it was maybe the staffs um but yes, I
Speaker 1: do know it. It was. It was after Enron and
Speaker 1: world Com failed, and so Congress stepped in and said
Speaker 1: they had to change this and up up the game,
Speaker 1: up the rigor with regard to auditing in the United States. So,
Speaker 1: as you pointed out, both both of us were from Baltimore,
Speaker 1: though we didn't know each other growing up. I'm a
Speaker 1: you know, ten years plus older than you. So you
Speaker 1: I grew up in Baltimore. Were you in a very
Speaker 1: wealthy family or was it a blue collar family? What
Speaker 1: kind of family was it? Well, neither of my parents
Speaker 1: went to college. In fact, my grand folks didn't. Three
Speaker 1: of them didn't even go to high school. But my
Speaker 1: dad started a small business out of UH with his
Speaker 1: mustering out pay after World War Two. And while I
Speaker 1: never had more than I think three dozen employees, it
Speaker 1: was a ven in business in the bars of Bottomore
Speaker 1: and so forth. It sent all of us UH kids
Speaker 1: to college. It helped pay down the mortgage over the years. Uh,
Speaker 1: and um, we we lived a good life around this
Speaker 1: small business and through the community of Pikesville that I
Speaker 1: grew up in. So you were four other siblings, one
Speaker 1: of whom is your twin brothers that right? Yeah, I
Speaker 1: have an identical twin brother. Watch out if he goes
Speaker 1: on TV. So who's smarter? Are you or your twin brother?
Speaker 1: How Rob is? So you went to uh, Pikesville High School,
Speaker 1: a very well known high school in that area. I
Speaker 1: assume you're near the top of your class. And you
Speaker 1: went to University of Pennsylvania undergrad Is that right? Yeah? Yeah,
Speaker 1: Rob went there as well. We both went to Wharton,
Speaker 1: had a faithful decision. He had gotten in a little
Speaker 1: earlier than I and I was. I was accepted. We
Speaker 1: were both kind of math kids, and I was accepted
Speaker 1: to M I T and Uh, my twin brother had
Speaker 1: gone to Wharton already accepted, and then on a faithful
Speaker 1: day decided to go the same place. It's worked out
Speaker 1: for me and I ended up at m I team
Speaker 1: many years later. So, so you graduated after working and
Speaker 1: then you went right to Goldman Sachs. Yes, I joined
Speaker 1: a group called the Merger and acquisition area. It was
Speaker 1: about a dozen people headed by Steve Friedman and Jeff
Speaker 1: Blasi at the time, who you might have later known, uh.
Speaker 1: And then it grew. It was throughout thees grew rapidly,
Speaker 1: and you became one of the earliest or youngest partners
Speaker 1: at Goldman. Is that right? I was honored to uh
Speaker 1: make it into the partnership while I was in the
Speaker 1: merger and acquisition area. That's right. So you're a partner
Speaker 1: at Goldman. You're making a great deal of money by
Speaker 1: any normal human standards. Why did you leave Goldman? Sachs.
Speaker 1: I my time there was I spent eighteen years there.
Speaker 1: I did a number of things, not just this merger
Speaker 1: and acquisition area, but I went to the trading side.
Speaker 1: I went and helped run part of the back office.
Speaker 1: It was really just a remarkable experience and opportunity. But
Speaker 1: I felt I felt some connection to public service, maybe
Speaker 1: as a as a kid that was a class treasurer
Speaker 1: and lost for senior class president. UM. I always had
Speaker 1: this connection and I thought public service was uh something
Speaker 1: if I had the opportunity, I wanted to be part of. Well.
Speaker 1: One of my mentors, uh, one of my bosses at
Speaker 1: Goldman Sachs. Bob Rubin had been chosen by President Clinton
Speaker 1: first to be as National Economic Advisor and later as
Speaker 1: Treasury Secretary and UH Secretary. Reuben knew I'd be a
Speaker 1: soft touch for service, and when President Clinton won a
Speaker 1: second term, UH, an opportunity arose. I I guess I
Speaker 1: competed for it, but an opportunity arose, and I went
Speaker 1: down to the Clinton Treasury as an Assistant Secretary for
Speaker 1: Financial Markets. And I haven't looked back. It has been
Speaker 1: It's been a terrific twenty four years. So after you
Speaker 1: left the Clint administration when it ended, UH, did you
Speaker 1: decide to go back in the investment world or what
Speaker 1: did you do? Now? The first The first thing I did,
Speaker 1: along with a colleague from the Treasury Department, is we
Speaker 1: wrote a book. UH. We We thought of it as
Speaker 1: a common sense book on investing, which really was promoting
Speaker 1: the use of low cost index funds for people that
Speaker 1: have UH just their their retirement savings and saving for
Speaker 1: their futures. So that was the first thing. And then
Speaker 1: I started working with Plus Sarbanes on that what you
Speaker 1: said became this accounting law called Sarbanes Oxley and then
Speaker 1: ultimately President Obama is elected and he asked you to
Speaker 1: be the head of the CFTC. Is that right? Yeah?
Speaker 1: I had been working on UH then's UM Senator Clinton's campaign,
Speaker 1: the two thousand and eight campaign as a senior advisor.
Speaker 1: So I was particularly honored that he that he reached
Speaker 1: out and his you know, gave me the opportunity to
Speaker 1: serve once again. So when you head of the CFTC,
Speaker 1: as I mentioned earlier, we were going through a recession,
Speaker 1: so you had to pick up a lot of pieces
Speaker 1: of failed investments and so forth. Was that a more
Speaker 1: challenging position than the one you have now? Um? At
Speaker 1: the SEC They're they're they're both remarkable organizations. The CFTC
Speaker 1: is of course smaller, and the CFTC is interesting. It
Speaker 1: was set up to oversee commodity futures or derivatives for
Speaker 1: corn and wheat, and then in the nineties seventies it
Speaker 1: was expanded to energy products and yes, interest rate products
Speaker 1: and and even the S and P five hundred stock future.
Speaker 1: So so these these these derivative products, but an innovation
Speaker 1: had come up called swaps and swaps which are very
Speaker 1: similar to UH futures. Another form of derivative had not
Speaker 1: been regulated, and in the middle of that crisis, that
Speaker 1: two thousand and eight crisis, credit to fought swaps and
Speaker 1: swaps lead to some of the the instability in our markets.
Speaker 1: So working with Tim Guitner, working with Mary Shapiro at
Speaker 1: the SEC, working with all the members of Congress actually
Speaker 1: across the aisle, we cobbled together reforms for this swap market. Now,
Speaker 1: you had a very impressive career, and it's still very impressive,
Speaker 1: but at one point you had a tragedy. Your wife
Speaker 1: passed away and you had to raise your three daughters
Speaker 1: essentially by yourself. So how did you do all that
Speaker 1: while you were doing all these other things. Well, I'm
Speaker 1: not sure I did it all that well, but I
Speaker 1: was actually off the grid. So we lost Francesca in
Speaker 1: two thousand and six. She had first had cancer when
Speaker 1: we were Uh, I guess you'd said kids. I mean,
Speaker 1: she wasn't but thirty when she first had cancer and
Speaker 1: we were dating. We were blessed to go on and
Speaker 1: get married have three wonderful daughters. But we did lose
Speaker 1: Francesca to cancer in two thousand and six, and I
Speaker 1: was kind of off the grid, and uh, for three
Speaker 1: or four years, pretty much stay at home dad or
Speaker 1: your daughters, any of them now influence to go in
Speaker 1: the financial services world. No one's a remarkable uh artist,
Speaker 1: a political cartoonist and artist, ones a PhD and culture anthropology,
Speaker 1: and one's working in immigration law. So President Biden, he
Speaker 1: asked you to head up the SEC. Were you interested
Speaker 1: in doing that? At the time you were teaching m
Speaker 1: I t UM. You finally got your taste of m
Speaker 1: I t So why did you decide to leave m
Speaker 1: I t and coming and run the SEC? One when
Speaker 1: a president asked you to do something, It's really hard
Speaker 1: to say no. Let me let me just say that.
Speaker 1: But it's also just an incredible privilege and an honor.
Speaker 1: I've been around capital markets my whole adult life, uh,
Speaker 1: starting as I said, as a twenty one year old
Speaker 1: at Coleman Sachs, and here some four decades later, I've
Speaker 1: asked once again to serve. It's a hard thing to
Speaker 1: say no to. I will say this though, being a
Speaker 1: professor UH at m I is an incredible experience, the
Speaker 1: vibrancy of that student body, the faculty, the stayff so.
Speaker 1: But even there, I was studying the intersection of finance
Speaker 1: and technology. I was spending a fair amount of time
Speaker 1: on that intersection and the new innovations around fintech and
Speaker 1: then more precisely around artificial intelligence and also cryptocurrency sort
Speaker 1: of that it's started with the Setosian Nakamoto white paper
Speaker 1: thirteen years ago. Well, let's talk about that. You did
Speaker 1: teach an M I t about things that you don't
Speaker 1: like to use this word cryptocurrency, I guess, but essentially cryptocurrencies.
Speaker 1: What is the SEC doing about that? Is? Is it
Speaker 1: is are cryptocurrencies are security or are they not a security?
Speaker 1: Is it a currency or is it? What is it?
Speaker 1: It's clear if if you're using this new technology to
Speaker 1: raise money from others and those other people that the
Speaker 1: public are anticipating profits based on the efforts that that
Speaker 1: brings it into this what's called an investment contract. Congress
Speaker 1: back to back to nineteen thirty three and nineteen thirty four,
Speaker 1: Congress painted with a very broad brush, David. They painted
Speaker 1: with a broad brush to protect the public from fraud
Speaker 1: when people were raising money from the public, and the
Speaker 1: public is in anticipating a profit based on those individuals
Speaker 1: raising the money. So it look it depends on the
Speaker 1: facts and circumstances. It depends obviously on each individual uh token,
Speaker 1: But many of these, uh, maybe even the majority of
Speaker 1: them are tokens raising money from the public, where the
Speaker 1: public is anticipating profits based on the efforts of the
Speaker 1: others that promoters. So should we anticipate that you will
Speaker 1: have regulations clarifying what the sec is going to do
Speaker 1: on cryptocurrencies and related kinds of things in the near future.
Speaker 1: I actually think it's it's it's pretty clear. Uh. My predecessor,
Speaker 1: Jake Clayton uh said this more than once that he
Speaker 1: thought it was pretty clear that many of these tokens
Speaker 1: maybe actually his words where he hadn't really seen many
Speaker 1: that weren't securities. What what we've asked the trading platforms,
Speaker 1: the lending platforms, the other various venues to come in
Speaker 1: to work with us to get registered under the securities laws.
Speaker 1: Because of a platform has fifty or some of them
Speaker 1: five hundred tokens on their platform, probabilities are they're not
Speaker 1: all uh, non securities. How do you get ideas from
Speaker 1: the White House? I mean, you were appointed by the president,
Speaker 1: you're the head of an independent agency, but of the
Speaker 1: White House, House policies, do they call you up or
Speaker 1: you basically once the president the point of view, you
Speaker 1: don't see him. Again. We work very closely with the U. S.
Speaker 1: Department at Treasury, with the other financial regulators, of course
Speaker 1: they're sibling market regulator, the CFTC and the back regulators
Speaker 1: in the Federal Reserve. And I'm I'm a member of
Speaker 1: something called the Financial Stability Oversight Councils again, something Congress
Speaker 1: set up after the o A crisis. And yet we're
Speaker 1: an independent agency where if we write a role and
Speaker 1: certainly if we do enforcement actions, we we don't. We
Speaker 1: don't check in with the White House. And that's by
Speaker 1: Congress's will. Congress wrote the law that way. And um,
Speaker 1: so there's a certain independence from that. Uh, that daily
Speaker 1: back and forth with President Biden. Isn't calling you saying
Speaker 1: good job, Gary, You're really doing a good job there right, Well,
Speaker 1: you know, I wouldn't, I wouldn't probably uh want to
Speaker 1: disclose any of that. But that's a that's a would
Speaker 1: be a pretty unusual president sec uh Chair. I mean,
Speaker 1: I know my predecessor may have played golf or something,
Speaker 1: but that's not happening here. Speaking of golf, how do
Speaker 1: you stay in shape? You look like you're pretty fit.
Speaker 1: I mean, well, how do you percise or stay in
Speaker 1: shape when you're chamber of the SEC. Well, you're kind,
Speaker 1: You're kind to say that. I've been a lifelong uh runner,
Speaker 1: and I learned a little bit of athleticism that decision,
Speaker 1: that faithful decision to go to University of Pennsylvania because
Speaker 1: my twin brother was there. Because also I ended up
Speaker 1: being at cocks In for crew, and I learned from
Speaker 1: coach Ted Nash this incredible sense of he was an
Speaker 1: Olympic horseman and Olympic gold medalist, this incredible sense of
Speaker 1: of of that it's important to think about our body
Speaker 1: as well. So I try. I even to this day,
Speaker 1: I try to still get out and run. I'm not
Speaker 1: as good a runner as I once was. Um, I've
Speaker 1: done a fair amount of biking in my life, and
Speaker 1: mountain climbing and trekking. My eldest daughter and my youngest
Speaker 1: daughter and I have all sort of trek together. My
Speaker 1: middle daughter, the anthropologist doesn't like that bit, but these
Speaker 1: are some of the things I try to do. So
Speaker 1: the pleasure of being the Chairman of the SEC is
Speaker 1: what you've obviously been trained for it. Why do you
Speaker 1: enjoy doing this? Because it's a twenty four hour day
Speaker 1: kind of job, you're always gonna have critics. Why do
Speaker 1: you enjoy this job? I assume you do enjoy it.
Speaker 1: You know, I do enjoy it, David. I think, Look,
Speaker 1: everybody's gonna find their passion. I was intrigued and interested
Speaker 1: in finance. I was my twin brother, and I guess
Speaker 1: got you know, gift of math and numbers, and but
Speaker 1: I was also always like felt like that what we
Speaker 1: can do to leave our world a better place? You know,
Speaker 1: when when when when we get to the end of
Speaker 1: our lives and look back, it's our family, it's our
Speaker 1: loved ones, it's our friends, And to me, can we
Speaker 1: leave the world a little bit better off? And that's
Speaker 1: that's what motivates me in this job. Can we can
Speaker 1: we do something that's better for working families or people
Speaker 1: starting out in their life, saving and investing for their
Speaker 1: future and tip the scales a little bit in their
Speaker 1: favor away from the folks in the middle. So does
Speaker 1: your twin brother ever say you did a better job
Speaker 1: and I did, or then he did and your career.
Speaker 1: Does a twin brother say you've got a little lucky
Speaker 1: Or does he ever say I was really smarter than you.
Speaker 1: I just didn't want to be the chair of the SEC.
Speaker 1: What does he say about this? Um? Rob's a terrific
Speaker 1: friend and a terrific brother, and he says usually just
Speaker 1: gare go get him. Thanks for listening to hear more
Speaker 1: of my interviews. You can subscribe and download my podcast
Speaker 1: on Spotify, Apple, or wherever you listen.