Wall Street’s new watchdog,
Gary Gensler, is coming to the job
with an ambitious agenda that includes taking a hard look at how to regulate
digital currencies and requiring more environmental disclosures of companies.
But the market may already be dictating some of the agenda for Gensler.
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A former banker and regulator, Gensler, 63, was confirmed to
lead
the Securities and Exchange Commission (SEC) last Wednesday and took office
Saturday. One of the first things he will probably have to weigh in on as chair
is whether to assert more control over the red-hot market for special purpose
acquisition companies, or
Special-purpose acquisition companies (SPACs), those
speculative businesses that have raised well over $100 billion from investors.
He must also decide whether should do more to protect small
investors, who have recently become a major force in the stock markets, pushing
up penny stocks and setting off the frenzied trading in shares of
GameStop.
Then there is Archegos Capital Management, the $10 billion fund whose implosion
last month caused billions of dollars in losses for several Wall Street banks
and spotlighted the loosely regulated world of family offices.
“Gensler is going to be confronted with a range of enforcement
issues, and he is going to have to determine what his priorities are,” said
Daniel Hawke, a former chief of the SEC’s market abuse unit and now a partner
with the law firm Arnold & Porter.
The SEC has already opened inquiries into the GameStop and the
Archegos situations and issued warnings to investors about the froth building
around SPACs. Supporters of Gensler, a former Goldman Sachs banker and business
school professor, expect him to move quickly on those issues as well as the
rest of his agenda. They said Gensler’s experience running the Commodity
Futures Trading Commission during the heat of the 2008 financial crisis makes
him particularly well suited for this hectic moment on Wall Street.
“One thing that Gary demonstrated very well at
Commodity FuturesTrading Commission (CFTC)a is, he has ability to move a very broad agenda and
very fast,” said Dennis Kelleher, chief executive of Better Markets, a
nonprofit, who served on President Joe Biden’s financial policy transition
team, which Gensler led.
Kelleher said he expected Gensler to focus on reforming the
rules around corporate disclosures — including seeking more transparency from
companies and big investors on their risks from climate change and
contributions to it, as well as diversity on company boards — because it
affected much of his agenda.
“Disclosure writ large will be a common thread through all the
issues,” Kelleher said. “The SEC is fundamentally a disclosure agency, and
through better disclosure, you are supposed to be able to empower investors and
enable enforcement.”
Gregory Gelzinis, who focuses on financial regulation at the
Center for American Progress, a progressive think tank, said he expected
Gensler to take a more comprehensive approach to dealing with cryptocurrencies
and other digital assets.
Gelzinis said Gensler would probably draw on his familiarity
with the subject matter — he taught classes on blockchain technology at the
Massachusetts Institute of Technology — to approach regulation around digital
currencies more strategically. That would be a departure from his predecessor
Jay Clayton, who favored enforcement actions against initial coin offerings
without providing much regulatory guidance, he added.
Gensler, while teaching at
Massachusetts Institute of Technology (MIT), acknowledged that regulators had
struggled with how to treat digital assets. In a 2018 interview, he said
digital assets could at times appear to be both a commodity and a security. At his
Senate confirmation hearing, Gensler spoke strongly for heightened requirements
for companies to disclose climate risks and diversity efforts.
“Diversity in boards and senior leadership benefits
decision-making,” he said.
Gensler declined to be interviewed.
One thing the past three months have shown is that the stock and
bond markets have a way of quickly writing the agenda for anyone who leads the
SEC. That means SPACs will almost certainly be scrutinized. In particular,
Gensler will have to determine whether these blank-check companies are a good
market innovation for taking fledgling companies public or an investment
vehicle that has the potential to harm retail investors, Hawke of Arnold &
Porter said.
Even before Gensler’s arrival, others at the commission warned
investors about the dangers of investing in a SPAC simply because it is backed
by a celebrity or well-known athlete. And in the past few weeks, acting
division heads threw a chill into the $160 billion SPAC market with statements
that suggested regulators were taking a close look at the disclosures in SPAC
filings and some common accounting treatments.
Gensler, who is not a lawyer, earned a reputation as an
aggressive regulator during his time at the Commodity Futures Trading
Commission, where he sought to better regulate derivatives — the sophisticated
financial instruments that some blamed for making the 2008 financial crisis
worse because they allowed investors to add layers of leverage, or borrowed
money, to their investments.
Given all that awaits Gensler, Gelzinis of the Center for
American Progress said that other than the financial crisis of 2008, the
current period was one of the most consequential in decades for a new SEC
chair.
“To say he has a full plate may be an understatement,” Gelzinis
said.
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