You might expect that Gary Gensler, chair of the Securities and Exchange Commission, would be a little salty about federal courts, which have held up or blocked new rules and limited the commission’s purview and enforcement powers.
But the top securities cop had only kind words for the judiciary, and no comment on cases its esteemed members are currently litigating, in a conversation Wednesday moderated by former Commissioner Robert Jackson. The chair also shut down questions about the presidential election. Something about not wanting to break federal law.
Gensler gazers got a lot more material to work with on cryptocurrency, which the chair insisted was like any other security it has the authority to regulate, in line with the commission’s appeal this month of a ruling that held the opposite.
The conversation has been edited for length and clarity.
[Do] the courts today play a bigger role in financial regulation than they did [earlier in] your career? And if I’m right about that, is it a good thing?
I think the courts have shifted over 240 years. We went through a time when the administrative state had limited authorities. You had a period from the 1930s on that it was a more expansive authority. Now we live in a time [when] the Supreme Court weighed in just this last June with not one, not two, not three, but four big decisions in a week that related to the administrative state…If the courts interpret the law differently—I’ve taken an oath of office to follow that new direction. So if the law shifts, we pivot.
You’ve taken some pretty bold steps, and the courts have, from time to time, invalidated them on the basis that the agency lacks the authority to take those steps…courts, for example, in response to your rules on private funds and share repurchases, have questioned the degree to which the existing securities laws give you the authority to do the things you’d like to do. There’s pending litigation about the enhanced climate disclosure rules.
We laid out an agenda when I came in in 2021: 50 to 55 substantive rules that we wanted to do. We finalized 43. Three have been overturned…and five others are being challenged, [but] 35 are not.
One way we can respond to that claim that there is a lack of authority is for Congress to pass more detailed statutes…Should we have an even longer United States Code specifying exactly what each agency should do?
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Congress writing more detailed statutes, they could do. But I would note Dodd Frank…had [around] 400 [to] 600 mandatory rulemakings, 120 for the SEC. So Congress does leave mandatory rulemakings to the agencies already.
Rather than trying to make rules…you could just do regulation by enforcement.
We [do] use enforcement as a tool…It’s something about human nature, and finance…I was at Goldman Sachs for 18 years, and I loved it, but you know, we played near to the line…We’d say, “Well, what is the law? How do we make the most money around that edge?” [Regulators] sometimes need to bring the enforcement actions to bring people back to the right side of the line.
The cryptocurrency community would say that you have pursued regulation by enforcement…rather than providing a clear framework for which those markets can unfold.
Should we oversee cryptocurrency by trying to apply a 1940s Supreme Court decision to this technology?
Look, it’s the law of the land. I took an oath of office to [follow] it, but it also protects investors…In this field, if you’re offering or selling an investment contract or a security to the public, you need basic disclosure. That’s what Congress said…and the courts have upheld it all the way into the 2020s.
One could argue everything you just said counts in favor of bringing cryptocurrency into the regulated securities markets.
It’s already there. There is a noncompliant field, but the laws are there. The framework exists. Just because people don’t like the law doesn’t mean there’s not law. You don’t get to choose.
We’ve been consistently hearing from the courts that…there’s certain requirements of disclosure. And if you’re an intermediary, you don’t commingle all of these functions. [If] you don’t have segregation of your funds, oops, where were the funds when so-and-so went bankrupt? Think about the lack of protections in this field right now, in terms of the intermediaries.
We’re merit-neutral. The investing public gets to decide if there’s utility. But it’s only with disclosure that you can see what’s there, what’s the real use.