Preet Bharara:

From CAFE and the Vox Media Podcast Network, welcome to Stay Tuned. I’m Preet Bharara.

Gary Gensler:

Very few things in finance end well when they stay outside of our public policy frameworks. Public policy frameworks of financial stability, public policy frameworks in terms of protecting against money laundering, tax compliance and yes investor protection.

Preet Bharara:

That’s Gary Gensler. He has served as the chair of the Securities and Exchange Commission since April. Gensler has a long history of public service, including stints as the chair of the Commodity Futures Trading Commission, and as an aide to Senator Paul Sarbanes. Before heading the SEC Gensler was a professor of Global Economics and Management at MIT, where he taught a class on blockchain technology.

Preet Bharara:

Since taking office at the SEC Gensler has been making headlines, especially when it comes to cryptocurrency, calling it the Wild West and pledging to use the SEC’s regulatory authority to its fullest extent. I spoke with Gensler on Monday at the Code Conference hosted by Kara Swisher and Vox Media in Los Angeles. Our conversation covered the hotly debated issues around regulating cryptocurrencies, the future of SPACs and the importance of SEC initiatives to combat the climate crisis. That’s coming up. Stay tuned.

Preet Bharara:

So, as you know folks know, this week, I interviewed Gary Gensler, the chair of the Securities and Exchange Commission at a conference out in LA, and it occurs to me that over the years, I’ve gotten a lot of questions about the SEC, about securities fraud, about the relationship between the SEC and US Attorney’s offices. How are their jurisdictions different? How do you work together? And I thought as context to the interview with Gary Gensler. I would answer some of those questions I’ve gotten over the years.

Preet Bharara:

So first, as a matter of clarification, lots of lay people don’t fully understand the distinction between the powers of a prosecutor’s office versus the powers of the Securities and Exchange Commission. Now, both entities, both agencies have a lot of authority and power to police the markets and to protect investors and to hold miscreants accountable, but they’re different. Most importantly, the SEC is an independent civil regulatory agency, meaning it has no criminal powers whatsoever.

Preet Bharara:

I would see from time to time, somebody referring to the SEC arresting someone. The SEC has no power of arrest, the SEC does not have cuffs, the SEC sends no one to prison. There are also other powers of the SEC doesn’t have as a civil regulatory agency. The SEC does not do search warrants but of course, they have the ability to get documents, compel documents and do inspections. But they can’t do what sometimes in the press, they refer to as a raid.

Preet Bharara:

They also can’t do wiretaps, they’re not authorized to wiretap people’s phones. And they also can’t plan bugs in the boardrooms at companies. All of those things can be done with proper authorization, and cause shown in a judge to sign off by criminal prosecutors like those in US Attorney’s offices around the country.

Preet Bharara:

People also ask the question, well, then how does the US Attorney’s Office like my old office SDNY work with the SEC? Well, one thing that’s important to remember is, again, they are separate agencies, they have separate missions, they have separate mandates, and they have separate powers and authorities. And so we always say that we work in parallel with the SEC, when we have the same targets in mind. Some of whom would be criminal, and some of whom would be civil.

Preet Bharara:

In fact, it can cause a significant legal issue if it appears that the SEC, in some kind of collusion with the US Attorney’s office was a stalking horse for criminal prosecutors. So criminal prosecutors don’t sort of lurk in the background, try to get the SEC, at the prosecutor’s direction, to get information based on their inspection powers. So that a criminal case can be built. Each agency works separately, but can work in parallel, to try to get the evidence they need to bring the enforcement actions that are appropriate for them.

Preet Bharara:

And so people will ask, well, how does a case come to you? How does a case of securities fraud, whether it’s insider trading, or accounting fraud or something else, come to your office SDNY versus the SEC. Well, it happens in both directions. Often it’s the case that SEC staff are taking a look at some restatement of financials that accompany and they see conduct that looks like it’s so egregious, and so significant, and so willful and intentional, that maybe it rises to the level of criminal conduct as well. And they’ll make a referral.

Preet Bharara:

In fact, I was often talking to the various enforcement directors at the SEC, saying, “Look, if you find potential criminality, someplace, you have an option of going to many different US Attorneys Offices, in terms of your referrals, please bring them to SDNY.” Because I think, and I still think we do, have particular expertise there because the stock markets, the major ones in the country, sit in our district, in lower Manhattan. There are other times though, where it’s the US Attorney’s office that comes across information of securities fraud, and tells the SEC.

Preet Bharara:

So we might be looking at things of a criminal nature with respect to a particular defendant we picked up. And let’s say that person begins to cooperate and talks about criminal securities fraud on the part of colleagues of theirs at their company, we might think there’s a good reason for the SEC to have an independent look at that as well. So it works in both directions.

Preet Bharara:

If you read the financial press, you’ll often see, and this was, I think, more true in the past than it is at this moment, that there would be a joint announcement of arrests by the Department of Justice and an enforcement action against those same people by the SEC. That’s not required. It doesn’t have to be done that way. It was often the case that their investigation, our investigation will culminate at around the same time, and it made sense for the SEC to take its civil action at the same time, we took a criminal action, but sometimes it wasn’t the case.

Preet Bharara:

In the very notable matter of the insider trading case against Rajat Gupta, who was a member of the board of directors of Goldman Sachs, we prosecuted some years ago, the SEC announced a securities fraud case of a civil nature against Rajat Gupta. We didn’t yet have all the evidence that we needed. So we took more time and some months later we bought a criminal charge.

Preet Bharara:

The other thing to remember, is not just the difference in the authorities that the SEC has versus the DOJ, there’s also a difference in the burden of proof to make a civil case versus making a criminal case. As a reminder, to convict someone in a criminal case, you have to prove guilt beyond a reasonable doubt. For a civil case and all SEC cases are civil, as I said, you’d have to prove liability by a mere preponderance of the evidence. Meaning, essentially more likely than not to be true. That’s a much easier burden to bear.

Preet Bharara:

You may remember some years ago, there was a lot of talk about how the SDNY in connection with securities cases involving insider trading, used wiretaps and people sometimes say, “Well why did that happen? Why did you use wiretaps, was that helpful?” The first thing I always say is it was not my innovation. It was the innovation of my predecessors. Mike Garcia was the US Attorney when I inherited all these wiretaps in the various cases involving Galleon group, Raj Rajaratnam, and others, whose names you might remember from a few years ago.

Preet Bharara:

And as I always say, it’s kind of odd, that wiretaps have not ever been used before to our knowledge. Because the act of insider trading, the illegal conduct of insider trading, involves essentially, as one of its elements, an act of communication. It’s giving someone a tip about material nonpublic information. To do that, to accomplish the crime there has to be some communication, often that communication happens on the telephone.

Preet Bharara:

It’s hard to get up on a wire, you have to give a lot of proof, probable cause to a judge. There are lots of layers of internal review. But once you do that, and you can show that other phones or communication devices are being used to perpetuate a fraud, securities fraud scheme, like insider trading, you can move from phone to phone, each time getting judicial authorization. And then you have sometimes very, very compelling proof that jurors can hear with their own ears. That’s some basic background on how the SEC and DOJ work together and in parallel, and I hope you enjoy the interview.

Preet Bharara:

Stay tuned. There’s more coming up after this. My guest this week is Gary Gensler. He’s the chair of the Securities and Exchange Commission and an expert in financial markets and cryptocurrency. Ladies and gentlemen, Gary Gensler.

Gary Gensler:

Great to be with you, Preet.

Preet Bharara:

Thanks for joining us, even though remotely, we’ll try to make this as personal as possible. If I could let me start with a very pragmatic question that I think you can easily answer. What are some stocks that you recommend, I should buy?

Gary Gensler:

I would suggest that you wouldn’t want me to go into any individual names. But I hope that they’re duly registered if they’re offered here in the US, and that they are compliant with US laws. How’s that Preet?

Preet Bharara:

That’s fine, but unsatisfactory. If I asked you stocks, I should short you might know that better.

Gary Gensler:

Yeah.

Preet Bharara:

All right. All right, straight guy. So as you may understand this conference, the code conference involves a lot of folks who are interested in tech, who are involved in the business of tech, who rely on tech. And you said something interesting that I want to probe a little bit sort of as a foundational matter.

Preet Bharara:

You have said that you may have views on certain policies, but that you’re technology neutral. And I guess I take that to mean, you’re not neutral about the fact of technology, but with respect to a particular technology, blockchain or otherwise, that your view as a regulator, is that you are and should be technology neutral. My first question is, what does that mean? And the second question is, why is do you feel that that’s the proper posture for a regulator to be technology neutral?

Gary Gensler:

I think, great question. Look, I was honored to be a professor up at Massachusetts Institute of Technology. So I mean, I’m not in a sense as an individual, in my private capacity, technology neutral. But in my public Capacity I am. I was honored to study and do research and teach at the intersection of technology and finance. And I think technology since antiquity has been intertwined in finance.

Gary Gensler:

But I also think that it helps promote inclusion, lowers costs, can benefit competition, promote transparency. But as a regulator, I think the role is to be technology neutral. And whether it’s one technology or another, to provide the rules of the road that those technologies can compete. And the business models are left to the private sector, so to speak. And the public sector is there to protect against fraud, and abuses. And, of course, our three part mission, investor protection on one hand, capital formation on the other, and then what’s in the middle fair, orderly and efficient markets. And so if we can promote that I’m technology neutral.

Preet Bharara:

You said something interesting in your answer. And I appreciate the candor, you said that as a person, as a private person, you’re not technology neutral. And in preparing for this discussion, I talked to lots of folks on the law enforcement side, civil and criminal, and people on the industry side, and some of them said to me, that statement of technology neutrality, they don’t believe it. What do you say to folks who think, based on your teachings and your studies, you have formed an opinion of certain technologies that results in cryptocurrency we’ll get to in a moment. And these other people’s words, there’s a pretense of neutrality, that’s not really genuine, do you want to address that?

Gary Gensler:

Well, they might not know me well enough. That’s all … I spent three and a half years again, trying to teach and research at the intersection of really, truly, I think, the greatest technology and Science University in the world. Sorry to brag about that a little bit. But I think that in this role, I think it is appropriate to be technology neutral.

Gary Gensler:

Look, right now, there’s things going on in the initial public offering space, where you can raise capital, not just in traditional forms, traditional IPOs, but also with special purpose acquisition corporations. That sort of debate… And you can also do it a third way, direct listing. Those are different technologies. I’m technology neutral in that context, too. But I’m not technology about investor disclosure, and whether we have enough disclosure in the SPAC approach. And whether we have sort of level playing field amongst these different forms of capital formation.

Gary Gensler:

So it’s genuine. I understand that some who would like to say, “Look, I would like to just be outside of the public policy perimeter.” They would say, “That guy is not neutral.” But to that, I would say, “You’re right, I’m not neutral about public policy.” I think that our legislative body, the Congress adopts laws, you when you were a US Attorney in the Southern District, you were a cop on the beat. You helped enforce those laws. In a similar way, in a civil law enforcement way I’m a cop on the beat with 4,400 other people, cops on the beat to enforce the laws that Congress put in place and that we’re not neutral about.

Preet Bharara:

Okay. So let’s get to that issue that I mentioned in the introduction. The issue of cryptocurrency. And a lot of people don’t know what to make of you. You point out in every conversation that you have publicly and you have in this one that you taught at MIT, Massachusetts Institute of Technology, you’re probably, in fact almost certainly the most fluent on some of these technology issues of any former chair of the SEC. Which on one hand gives you knowledge fluency, on the other hand, may give you an opinion. And you have said things that sound open minded towards crypto assets.

Preet Bharara:

You’ve also said things that some people take as ominous about crypto assets. And I want to read to you one comment and see if you have a reaction. And that’s Ray Dalio, founded a very small hedge fund known as Bridgewater.

Gary Gensler:

Yeah, I’ve heard of Ray.

Preet Bharara:

Yeah, outspoken guy. He had this to say 12 days ago, and he’s speaking about Bitcoin and about regulators, namely you. And he said, quote, “at the end of the day, if it, Bitcoin, is very successful, they…” That means you, “They will kill it. And I think they will kill it, because they have ways of killing it.” My question is, is he right? Do you in fact, have ways of killing it? And will you therefore kill it because you have those ways.

Gary Gensler:

Preet, I really mean this when I say I’m technology neutral. I can go along with you. I think Satoshi Nakamoto, whomever she or he was, or they, we still don’t know, came up with some real innovations. And if you think about it, we’ve had gold for 10,000 years. Gold is a speculative store of value. And it’s got a long narrative.

Gary Gensler:

Bitcoin is Satoshi Nakamoto came along and said, “Well, you can do a speculative store of value a different way.” Now Nakamoto san’s paper talked about it being electronic money, or a currency. But in essence, what has happened over these 11 years, it’s a speculative store of value. A digital speculative store of value. If people want to invest in that. I really am, I know that you might not believe it, Ray might not believe it, neutral about that. But I am not neutral about the investor protection around that. And that’s the public policy that we’re supposed to put in place.

Preet Bharara:

And obviously, he stated it in an extreme way. And I asked the question in a kind of extreme way. You can be technology neutral, but engage in regulatory practice, that has the effect of hurting a particular industry, in Ray Dalio’s words, possibly killing a particular currency or not. And I guess before we get to some of the details about what you might be planning and thinking, do people like Ray and others have something to worry about with respect to how you might regulate? Or some other agents like the CFTC might regulate cryptocurrency such that it’s an existential threat to that business? Can you give some assurance that it won’t be?

Gary Gensler:

Well, I can’t speak for others in the official sector around the globe. There’s a couple of hundred countries and we’ve even seen recent actions by some other countries in this space. But let me just sort of make a thought exercise. When the automobile came along, would it have been good for Detroit if somebody in, I’d say the 19-teens didn’t come up, that we might have traffic lights, stop signs, speed limits, and even a cop on the beat.

Gary Gensler:

It actually would not have been good for Detroit, Detroit would not have sold as many cars. Or if I could have a little bit more fun if we were all watching football or basketball with no ref and no rules. I mean for a game or two or maybe three games, it would be really exciting and interesting. But afterwards, it wouldn’t be and so that’s our roll.

Preet Bharara:

Those are great analogies, and I take from those analogies given that you had a couple of chances to respond to the… You might say it’s a silly and extreme comment from Ray Dalio. The examples you’re using are, I think most people in this room would agree, rational, reasonably based regulations to protect people inside and outside of the industry but don’t pose an existential threat. So can I take from your answers and your analogizing that there’s no existential threat to crypto.

Gary Gensler:

Look from this guy? I can speak-

Preet Bharara:

I’m just talking to you. It’s just you and me.

Gary Gensler:

Yeah, yeah. And like 400 people in the room, there are thousands of people… You’ve got a good podcast.

Preet Bharara:

I do. And you’ll be on it this week.

Gary Gensler:

Yeah, yeah, yeah. But anyway, what I’m trying to say is that if somebody like me is technology neutral, it doesn’t mean that 5,000 or 6,000 cryptocurrencies are going to persist. And I’ve said this publicly, the history of private monies, is that private monies tend not to persist. We have 180 fiat currencies around the globe, just 180. So think about it, is it likely that 5,000 or 6,000, in essence, private forms of… I mean, there are many of them, many of them are securities, but they’re trying to compete with money.

Preet Bharara:

Some things will persist and some things won’t. But will that be because of the market which seems to be what you’re saying will that be because of you?

Gary Gensler:

I think it’s, do they want to come inside a consumer and investor protection remit? Do they want to comply with anti-money laundering laws, tax compliance, and the like. And so that’s up to the industry. And then those of us in the official sector have a responsibility to the American public and those in other countries to other publics to ensure for those public policy goals.

Preet Bharara:

Okay, so further to that the idea of people in that industry coming into a regulatory framework seems to turn on a simple question that is in the air everywhere. People are waiting with bated breath on the answer to the question, which is some version of are cryptocurrencies, crypto assets, digital coins, et cetera, whatever you want to call them, are they in fact securities within the meaning of the securities laws of the United States of America? And there’s a lot riding on that because some people if they have guessed incorrectly about that are engaging in unlawful activity per the SEC, although it hasn’t said so yet in many instances. And they don’t like that.

Preet Bharara:

It might prevent people from coming into the business. And you have said on multiple occasions first at your confirmation hearing, you said, “It’s very important for the SEC, to give guidance and give clarity.” And I know that you believe that. And you have said multiple times, as I mentioned in the intro, that the laws about this, the simple question, yet it seems very complicated. But it’s easily presented the question, is this or that asset, digital coin, a security or not?

Preet Bharara:

You say it’s clear, and I have great respect for the agency and for you. But there’s a lot of other folks on the other side of the coin, so to speak, even within the SEC, there are commissioners. There is famously as is being litigated about a former division head within the SEC, who said at a conference not unlike this one, not that long ago, that garden variety cryptocurrency is not a security within the securities laws. There are smart people out there in the industry, who I respect, there were former SEC division heads who represent those people. So there’s a lot of folks who-

Gary Gensler:

For a fee, they’re getting paid. They’ve got their-

Preet Bharara:

I believe you’re getting paid too.

Gary Gensler:

Yeah, but my client is the American public, ultimately. Their client is somebody who’s a commercial enterprise with all respect… Their client is somebody who’s got a commercial enterprise. And it’d be better to come in and comply with the law.

Preet Bharara:

So maybe you’re answering the question that I was framing. And the question is, given how you talk about how the law, with respect to what is or is not a security is clear, these other people think it’s not clear. I’m trying to understand why that divide exists. Maybe you’ve answered it, but my question is going to be are they dumb? Are they diluted? Are they disingenuous? Or do they just had bad lawyers? What do you make of the gulf between your view of clarity as to what is a security and their view of the lack of clarity?

Gary Gensler:

A little bit of history, in 1933 and ’34, when the various security… The first two securities laws were passed, Congress included a long list in defining what a security is. And they’ve even added to it a couple of times and Thurgood Marshall the history pre, in 1990, in a famous case, said the Congress painted with a broad brush.

Gary Gensler:

And the reason was, in his words, was to address fraud. And that broad brush has been interpreted by the Supreme Court multiple times. And those watching and listening know, if you give somebody money, and you’re relying on that somebody, that collective enterprise in anticipation of profits, that comes under some Supreme Court cases around an investment contract. And there’s other things. The word note and OTP is in the definition. It’s in fact, like the first word of a long list and so forth.

Preet Bharara:

But one Supreme Court justice-

Gary Gensler:

Jay Clayton, one of my predecessors said it, so it crosses party lines. And in February of 2018, he hadn’t really seen tokens that weren’t meeting those tests, that weren’t securities. It was very few of them. So I don’t know, I think that over the 90 years do you want to hear some of the things that have been in? Florida orange groves, that was the Howey test that went… Whiskey caskets, literally whiskey caskets.

Preet Bharara:

So there’s a lot of stuff. So why not say… And that’s fine. I mean, some people have said we just want to kind of know. If that’s true, and the examples you’re giving are orange groves and other things that seem far-fetched to the sort of normal platonic ideal of a security.

Gary Gensler:

With all respect not so… It’s a simple sort of straightforward concept. Do you Preet raise money from somebody, and they’re anticipating profits based upon your efforts or some other’s efforts? That’s kind of that collective enterprise anticipation of profit. I don’t know.

Preet Bharara:

No, but what I’m saying is, that seems a fair on one hand, evaluation of the law. But then you don’t seem to go the next step, which is to say, “Look, this is what the law says.” I think it’s very clear. And what it means when I say it’s very clear, is that all this stuff that crypto people are doing, there may be some exceptions among the 5,000 or 6,000 folks who are doing this, but pretty much I can guarantee you, if and when we’ll get to the question of timing. If and when my fines folks who also understand the clarity of the law, get to looking at your coin it’s going to be a security. So you better register it. And I’ve never heard you say quite that. But it sounds like that’s what you want to say.

Gary Gensler:

Look, I’ve said it publicly and it’s really to the platforms. There are probably a couple hundred or more platforms that are trading tokens, that are lending tokens, that are facilitating individual staking tokens. And these platforms usually have dozens, if not hundreds, and in some cases thousands of tokens on a… Just probability weighted, it’s pretty unlikely that there’s no securities, if you’ve got a couple 100 tokens.

Preet Bharara:

But the other way of saying it, if you’ve got-

Gary Gensler:

Those platforms ought to come in, and seek to register. And if there’s parts of it that doesn’t work out, sorted it through with the SEC. And if you’re offering a lending product that’s offering somebody a return, I don’t know, everything’s about facts and circumstances and law. Each individual circumstance, but I think there’s a lot of clarity in the law.

Preet Bharara:

So you spoke about lending in this space. And I’m sure people have brought this to your attention. This person is not here to my knowledge. But the CEO of Coinbase, Ryan Armstrong had some strong things to say about the SEC, called the conduct of the SEC in this area, I think sketchy. Sketchy behavior. Thought about getting into the lending space on cryptocurrency, said in an extended series of tweets that they were told no, that they were given no explanation. They asked to come in, the SEC refused to meet with them. And then he lobbed a phrase that I know you will not like, but I want to give you an opportunity to respond to that particular complaint, and the generalized view that people can’t come. He said, not my words. He said you the SEC, are regulating by litigation. What do you say to that?

Gary Gensler:

I’m not going to comment any one particular circumstance or a particular investigation, Preet. You probably know that pretty well, from the time you were-

Preet Bharara:

I gave that answer many times, but I have to ask.

Gary Gensler:

I got it. I got it. I just wanted to let you see how it felt to get the answer.

Preet Bharara:

Feels fine. I’m answer neutral.

Gary Gensler:

Okay. Good.

Preet Bharara:

But did you want to… Let me ask the general question, is it that when you say, and I’ve heard you say this on multiple occasions, come in, let’s have a conversation. Is the door the SEC building open to all cryptocurrency comers who want to get some guidance?

Gary Gensler:

Well, if it’s the door, they’ve got to be vaccinated and things like that. But right now we’re in a very difficult time in the pandemic, but if you’re talking about virtual-

Preet Bharara:

Is this Zoom door open?

Gary Gensler:

Yes. Virtual doors, yes.

Preet Bharara:

Right. So okay, how are you thinking about prioritizing which companies you’re looking at? Or are you looking at them all at the same time?

Gary Gensler:

I’ll say there’s trading venues and lending venues where they coalesce around these, and they have not just dozens, but hundreds, and sometimes thousands of tokens on them. And as I said recently, this is not going to end well if it stays outside the regulatory space. I might be wrong. If I’m wrong, I’ll be glad to come back. You might not invite me in a number of years after.

Gary Gensler:

But I would say that very few things in finance end well, when they stay outside of our public policy frameworks. Public policy frameworks of financial stability, public policy frameworks in terms of protecting against money laundering. Tax compliance, and yes, investor protection.

Gary Gensler:

And to think that a field that’s grown tenfold in the last 18 months, and I don’t mean just tenfold in asset value, but in terms of the lending, the underlying lending, and so much more. To think that that’s going to stay outside of these big public policy frameworks and succeed. If you’re pro technology, that I think you’d want to also be, find your way inside of a public policy framework.

Gary Gensler:

And regulating these platforms like we regulate MoneyGram in 49 separate states. 49 separate money transmission licenses, rather than either as banks if they’re doing lending and they’re not registered there either. Or if they’re offering securities or a product that has securities under our rules. And even my sibling agency, the Commodity Futures Trading Commission, wonderful agency has enforcement authorities, but not regulated authorities. I think that it’s unlikely to persist outside and we’ll end up with problems and a lot of people will be hurt.

Preet Bharara:

My conversation with Gary Gensler continues after this. Let’s move on to something else that you mentioned already once. That is also something under review by staff you’ve directed them to take a look at. That’s SPACs, special purchase acquisition companies. There was a huge one announced earlier today just some hours ago, backed by Leonardo DiCaprio, famous capitalist. Involved in the making of electronic vehicles. Valued at $20 billion. Let me ask you a very straightforward question. What are the concerns that you believe you and your staff are most focused on? When do you think you’ll have something for the public on what you think investor protection requires in that area?

Gary Gensler:

I’ve asked staff to serve up some recommendations that we would put out, if the commission approves it, and recommends it, we put it out to what’s called noticing comments. So through rule writing, Preet which you’re familiar with, and many in the audience probably are familiar with. But I think at the core, it’s not only about the investors, it’s also about the capital formation, it’s what’s going on in the middle.

Gary Gensler:

And these shell companies raise money. And the promoters are raising money. And they say that, “I’ve got two years to invest it.” And then it’s tick, tick, tick, tick, tick it’s waiting two years to invest that money. But they get 20%, generally speaking, 20% of the raised money. Raise a billion, you get 200 million.

Gary Gensler:

And there’s an incentive system in there to find a merger, even if it’s particularly not a great merger, because without closing on a deal in two years, you don’t collect your 200 million in that example that I give you. So there’s a lot of costs. There’s a lot of additional costs when you finally find a company to merge with what’s called a DSPAC, there are a lot of other costs with bringing in new private investors into the system at that point in time.

Gary Gensler:

The earlier institutional investors often redeem out, and the retail investors are holding a lot of the dilution, a lot of the costs, but also the companies that are thinking about going public, those companies in the audience maybe that are thinking about going public, there’s an awful lot of costs. So what we’re looking at is greater transparency, and also looking at some of the conflicts in this.

Preet Bharara:

Can I ask you a more sort of general question about investor protection. There are a lot of investments that in the name of investor protection we don’t allow people to participate in unless they’re qualified or accredited investors. Hedge funds, IPOs, things like that. And I get it, and a lot of people understand that. There are more vocal folks saying on the other side of the coin, those are great opportunities to make a lot of money, that are not available to people of lesser means, even if they might happen to pass some other test of sophistication.

Preet Bharara:

And some folks think that in the name of protection, there’s really paternalism. And a lot of average investors are not able to compete with the rich, who by virtue of their riches are the only ones able to get richer. How do you think about that balance between making sure there are opportunities for average investors, but also making sure that they don’t get ripped off?

Gary Gensler:

I think that we’ve got both vibrant public markets and vibrant private markets. Venture capital, and other markets, private equity and the like. But I think that basic bargain that Franklin Delano Roosevelt cut with Congress back in ’33, and ’34 and over and over again, was investors get to decide but they have to get full and fair disclosure.

Gary Gensler:

And the challenge in what you’re suggesting is, and what others may be suggesting and you’re quoting, is are investors, the broad public, the working families in America, or the retirees in America trying to invest in save for a better future. Are they getting that full and fair disclosure? I think the capital markets work well in the remit, these 90 years, FDR’s innovation from the 30s. But there may be some that basically want to say no, let’s not have that. But I think that’s a good remit.

Preet Bharara:

There’s something else under review. I can’t wait till all these things come to light. Then we can talk again. But you have asked your staff, I believe, also to take a look at what kinds of mandatory disclosures to require from companies with respect to their environmental impact. Carbon footprint, everything else. And there’s lots of complicated things that I know go along with that. And I applaud that. I think it’s very important.

Preet Bharara:

My question is, to the extent that now becomes a requirement of disclosure to the formidable SEC, is there any worry along the lines of some type of moral hazards. So that a company might be prepared to do more, but they will now declare and represent and predict less and do less to lower the likelihood that they get charged with a false representation and securities fraud in the future? Or is that a silly concern?

Gary Gensler:

I’m hopeful that we put something out to public comment, I’ve asked staff to serve something up. It’s actually a little narrower than you said. But it’s about climate risk disclosure. And we now have investors around the globe, asking for such disclosures. And hundreds of companies, if not thousands of companies are making some disclosures.

Gary Gensler:

Our role at the SEC is to try to bring some consistency to that, some comparability and yes, decision useful. And so to bring that consistency, comparability, decision usefulness, we’ll put something out to public comment, we’ll see what investors really say is useful. There’s a balancing, I understand what you’re saying, there’s a balancing. But I think that the time is right for us to weigh in and get the public comment. And the economic analysis will be really important as to what investors really… What’s decision useful, whether it’s greenhouse gas emissions, and what nature of metrics, quantitative and qualitative disclosures.

Preet Bharara:

Are you getting… Just last question on that. Are you getting informal pushback and direct pushback from certain quarters right now on what you’re even thinking about?

Gary Gensler:

Well, people come in all the time virtually. And my fellow commissioners, and I meet with a lot of people. But I would say that we put out for public comment, more precisely my predecessor in this job, but then acting chair, Lee, Allison put something out for public comment. And in a significant majority was a thumbs up saying this would be helpful if we brought some consistency and comparability to the space.

Preet Bharara:

I want to ask you about a practice of not just the SEC, but many public law offices that undertake enforcement actions. And it’s near and dear to my heart, because I had a particular view about this when I was the US Attorney. So I believe the SEC has a noble function. And when it chooses to use its resources and energies to bring an enforcement action, they do so in good faith. And the public must know and understand they do it in good faith. And sometimes those cases are withdrawn, but most of the time… And sometimes it goes to trial, but most of the time, it ends up in some resolution.

Preet Bharara:

And much of the time in connection with the resolution in which the enforcement action was brought in good faith and some remedy is agreed to meaning a penalty, disgorgement, making some party whole or some other barring activity, such that it seems that the SEC did the right and righteous thing and the company is paying some price. But in many, many cases still, that defendant, that company, who has had an action enforced against them, is permitted to settle on the language of neither admit nor deny, which seems to a lot of people at odds with what actually happened.

Preet Bharara:

And I think over the long run lessens people’s faith in the propriety of the action in the first place, and I understand there’s collateral consequences. And I know it’s very different. But when I ran the Civil Division in my office, which also brought enforcement actions of a different nature, we changed the policy in virtually every case we required admissions or we go to trial. Do you have a view on whether or not the SEC should be stricter about the neither admit nor deny policy?

Gary Gensler:

I understand the question, and I understand probably how challenging it was when you had to take that on as a US Attorney. I think that the finding of facts are really important for the public to understand what is the reason for this settlement, and you put it in the context of settlements. What is the reason? I think that finding of facts that to really explain it to the public is very important.

Gary Gensler:

I think when appropriate circumstances bars, civil, because we’re just a civil law enforcement agency. But civil bars from various participation in the SEC space are appropriate. And particular undertakings as well, in this regard. But as you said, you had to really think long and hard because it’s also about resource allocation. And maybe you felt that you had the resources to change that whole remit in that regard. It would be a very significant change. If we were to take that one and an allocation of resources, that would be different.

Preet Bharara:

And so I think what you’re saying on that point, is that if you become a stickler about something, the option is to go to trial, that takes resources, the SEC doesn’t… I’ve seen criticism for a long time, from various quarters about how few trials the SEC has. I feel like that was true in our Civil Division also. But I think it’s something worth thinking about. Is there any area of securities law that you think is unclear?

Gary Gensler:

I was just wondering whether… When the Washington Post ran that article about a year ago that you and I might be considered for this job that I’m in. And if you had wanted it and gotten it and all those things, would you have done with the thing that you just asked?

Preet Bharara:

Frankly, since you’re asking, and I appreciate the question. I don’t think I would say in the same way that you and others are, that the law is crystal clear. And I would be in a better position to answer this next question, I’ll give another example.

Gary Gensler:

No, no, I was asking what you would have done-

Preet Bharara:

Is there any area that’s unclear? Yeah, I think with respect to the area that’s unclear, insider trading law. The cases that we brought when I was a United States Attorney, we brought cases that as applied to those facts were very, very clear. But we’ve also proposed with a number of other people, including former officials of the SEC, that it would be great for both the defense bar and the SEC and companies, for there to be a codified statute that sets forth more clearly with the elements of insider trading are. Many people may know and many people may not, there’s actually no statute that specifically spells out the elements of insider trading.

Preet Bharara:

And part of the reason we wrote in our report, since you brought it up, that we thought that’s an important thing is because clarity is important. And I think, even though it can be true that the cases you bring under a law that at its margins is unclear. You can bring clear cases but what people are talking about, and the reason people are concerned is they’re not talking about cases already brought. They’re saying that when I’m advising my client now about what the parameters are, should we continue to engage in this business or not, I think they could use some more clarity. I only have time for like another minute or two. Do you have a view as to whether or not members of Congress… Would you support a law that would prohibit members of Congress from trading individual stocks?

Gary Gensler:

That’s up to Congress. My job right now is to, along with my fellow Commissioners in this remarkable agency… And for those of you out there that don’t know, I mean, it’s just a terrific agency, it’s really dedicated. Is to really just try to, in all the things we cover, we cover nearly $100 trillion capital markets. You know the stock markets, but it’s treasuries, corporates, asset backed securities, municipals, et cetera. That in every place that we try to use our resources, and they’re somewhat limited, but to use our resources to help protect investors, promote capital formation, which probably a lot in that audience want.

Gary Gensler:

And then in the middle, by the way, fair, orderly and efficient markets does tend to mean lower economic rents in the middle, lowering the cost of capital formation. So you all in that audience can raise money more efficiently, and investors get a better deal on the other end. We’ve spent a lot of time on crypto, that $2 trillion asset class is only… And that’s a global asset class is probably less than half percent, or maybe three quarters of a percent of the world’s financial assets.

Gary Gensler:

So we spent an inordinate time it’s interesting, it’s great to be with you. But the bulk of the job at the SEC is the blocking and tackling and we hope promoting more efficient, more orderly, more competitive markets in the middle so companies can raise money more effectively, and investors get a better deal.

Preet Bharara:

One last question. People should started coming to the microphones to be able to ask a couple of questions of the chair. Apropos of nothing, is there any behavior by say, Elon Musk, about what you would like to say to him, could you just Knock it off? I know you’re not going to answer that question but I wanted to give you the chance.

Gary Gensler:

No, no. The only thing is he might have fun having an interview with you that’s all.

Preet Bharara:

No, the very excellent Kara Swisher is doing that one. I think that’s all we have time for. Gary Gensler, I’m glad it’s you there and not me. Thank you for spending time with us and most importantly thank you for your service. Thank you very much.

Gary Gensler:

Preet, you never know. You might be here someday.

Preet Bharara:

My conversation with Gary Gensler continues for members of the CAFE Insider community. To try out the membership free for two weeks head to cafe.com/Insider. Again, that’s cafe.com/Insider. Well that’s it for this episode of Stay Tuned. Thanks again to my guest, Gary Gensler.

Preet Bharara:

If you like what we do, rate and review the show on Apple Podcasts or wherever you listen, every positive review helps new listeners find the show. Send me your questions about news, politics and justice. Tweet them to me @PreetBharara with the hashtag #AskPreet or you can call and leave me a message at 669-247-7338, that’s 669-24-PREET, or you can send an email to staytuned@cafe.com.

Preet Bharara:

Stay Tuned is presented by cafe studios and the Vox media Podcast Network. Your host is Preet Bharara. The executive producer is Tamara Sepper. The senior producer is Adam Waller, the technical director is David Tatasciore. The CAFE team is Matthew Billy, David Kurlander, Sam Ozer-Staton, Noa Azulai, Nat Weiner, Jake Kaplan, Chris Boylan and Sean Walsh. Our music is by Andrew Dost. I’m Preet Bharara. Stay Tuned.