Why Wall Street’s top cop thinks it’s time to get tough

In his new job as Wall Street’s top cop, Gary Gensler often thinks about one of his grandfather’s favorite aphorisms.

“Ellis Tilles would say, ‘Figures don’t lie, but liars sure can figure,” Gensler told NPR in a recent interview, noting that his grandfather immigrated to the U.S. from Lithuania at age 17.

The chairman of the U.S. Securities and Exchange Commission first heard that adage when he was a kid, growing up in Baltimore.

And although he didn’t know his grandfather well, that saying has become a kind of guiding principle as he vows to bring a tougher and more muscular approach to supervision at a critical time for markets.

During the pandemic, millions of amateur investors have started trading stocks for the first time, thanks to apps like Robinhood.

They have banded together on the social network Reddit to push up the price of “meme stocks,” including GameStop. And they have embraced cryptocurrencies and trendy investments like SPACs, which have become a popular way for private companies to bypass traditional initial public offerings.

That worries Gensler, who says these amateur investors may not be adequately protected.

“The basic bargain or tenet of our capital markets is that investors should get full and fair information,” Gensler said. “And two, that they are protected against fraud and manipulation.”

Under his leadership, the agency has launched a number of high-profile investigations, including one into a planned SPAC deal involving former President Trump’s social media venture.

And Gensler is making his way through a long agenda. On Wednesday, the S.E.C. unveiled several proposals, including potential restrictions on how executives can trade on their own companies’ stocks and a push for enhanced disclosures about corporate buybacks.

There’s a lot more to come, much of it tied to forcing Wall Street to divulge more information or to enhance protections for average investors.

The sheer scope of SEC’s agenda has stunned some longtime Wall Street observers.

“I’m staggered, as someone who has been watching the S.E.C. for half a century now, that the agenda is so robust, and there is so much energy behind it,” says James Cox, who teaches corporate and securities law at Duke University.

“I’m thinking that, not only does Gary Gensler work seven days a week, but I think he works 26 hours a day,” he says.

‘My name is Gary Gensler’

Gensler brings years of experience as a regulator to his current role.

Unlike many of his predecessors, Gensler is not a lawyer by training. After starting his career at Goldman Sachs, where he rose through the ranks to become a partner, Gensler worked in the Treasury Department and then, as the chairman of another regulator, the Commodity Futures Trading Commission.

He ran that agency at another pivotal time, in the wake of the 2008 Global Financial Crisis. Gensler spent most of his time at the C.F.T.C. implementing new rules and regulations required by the sprawling Dodd-Frank law that brought tougher restrictions on Wall Street’s activities.

Gensler is credited with reining in the so-called over-the-counter derivatives market, which is valued at hundreds of trillions of dollars. These kinds of contracts, traded by dealers not on exchanges, contributed to the meltdown in 2008.

And Gensler has kept his pulse on markets and finance through his life.

In 2018, Gensler joined the MIT Sloan School of Management, where he taught a course called “Blockchain and Money,” about the technology that underpins Bitcoin and other cryptocurrencies.

“My name is Gary Gensler,” he said when introducing himself to his students during his first lecture. “I’ve spent a lifetime around the world of finance and money and public policy.”

Tougher rules coming for cryptocurrencies

Of all the items on Gensler’s docket, the planned regulatory approach to cryptocurrencies perhaps tends to attract the most interest.

Gensler’s class on Blockchain has become popular with the crypto curious who want to learn more about how digital currencies work.

But it also defines how Gensler approaches the job.

Cryptocurrencies have exploded in popularity since the pandemic began last year and today, tens of millions of investors are buying all kinds of virtual money, including ones such as Dogecoin that started off as jokes.

“Markets—and technology—are always changing,” Gensler told members of the Senate Banking Committee during his nomination hearing. “Our rules have to change along with them.”

In the NPR interview, Gensler said crypto investors deserve “some protection similar to what you’ve come to expect on the New York Exchange or Nasdaq or other trading venues.”

Gensler has asked his staff to look into how the S.E.C. could regulate digital currencies and the exchanges on which they are traded. In speeches and congressional testimony, he has argued many cryptocurrencies are effectively securities, and therefore, they come under the agency’s authority.

Wall Street fears overreach

Gensler’s aggressive approach to regulation has some investors worried the U.S. could fall behind its competitors, or that new rules could stifle innovation.

This is a challenge all regulators face, according to Edmund Shing, the chief investment officer at BNP Paribas Wealth Management.

“Protecting consumers is generally a good thing, and regulations that are put in place to protect consumers are never a bad thing,” he argues. “The question is whether governments then overreach themselves.”

Gensler has heard this concern before, and when asked how he strikes the right balance, Gensler invokes every regulator’s favorite cliché.

“It’s sort of like that Goldilocks point,” he says. “That the porridge is not too hot, and not too cold.”

And as he tries to get that recipe just right with new rules, Gensler says he’ll continue to keep his grandfather’s aphorism top of mind.

“I just want to take every day to see what we can do for the American public — for young investors, for working families, for retirees along the way” he told NPR. “And then, hopefully, make the markets a little better for regular folks.”

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