Gary Gensler Testifies Before the House Financial Services Committee

Transcript

over formation among your expansive rulemaking agenda items there is not a single initiative aimed at improving access to Capital or enhancing Market competitiveness third your efforts to choke off the digital asset ecosystem which has created real harm for consumers and our markets is clear to all you said the law is clear but your actions have created a marketing damage chair Gensler you've also said your goal is consumer protection yet your actions have pushed legitimate digital asset activities outside of regulated financial institutions where consumers are best protected on one hand we've seen bipartisan votes

in Congress in this committee to provide clear rules of the road and real consumer protection and on the other we've seen your ad hoc regulatory regulation by enforcement approach to digital assets on a losing streak in the courts you refuse to be transparent with Congress regarding your interactions with FTX and sandbanked and freed that's investigation we started last Congress finally your lack of responsiveness to this committee's legitimate oversight continues to be unacceptable and I want to finish here in February the committee made multiple requests for documents as curious Exchange Commission this is normal congressional oversight yet seven months later the committee has not received a single non-public document that was not

part of a foia production as I said our patience is wearing thin the SEC is not above the law nor is it unique other Financial Regulators have routinely complied with congressional oversight so let me be clear I do not want to be the first chairman of this committee to issue a subpoena to the secures Exchange Commission and you should not want to be the first SEC chair to receive a congressional subpoena either we find a path forward where the SEC recognizes Congress is a co-equal branch of government and is responsive to our oversight duties or my option is to issue a subpoena it's time for you to consider the

lasting consequences of your action your actions and what that means to the Securities Exchange commission's reputation long term while your time in this role may be temporary the repercussions for your actions may be permanent for the agency I yield back all right ranking member uh the committee for four minutes for an opening statement good morning oh God the chairman just indicated that his patience is running thin mine is thinner with the opposite side of the aisle and in this extreme Mega Republicans who have taken over we are already going down this path this is the lady who blew of the greatest country in the world to shut down and forcing

millions of government workers including U.S service members protecting the economy to work for free are not at all likewise in three days the Securities and Exchange Commission which is in charge of overseeing our 110 trillion dollar Capital markets will also be shuttered this extreme magazine they're talking about there she's doing the whole budgeting the government's going to shut down on the first and now that this is what she's talking about has nothing to do with the SEC but you won't hear the Republicans today Express anything this is just them this is just red versus blue this isn't even about the SEC this is his workers or investors that may be harmed when we

Republicans unilaterally defund wall Street's cop chair againstler I know that you and your agency are alive about what will happen later this week I too am concerned earlier this year we saw Fitch downgrade the U.S credit rating after Republicans tried to force a default and now Moody's is also considered ring downgrading the U.S rating if Republicans and Trump get the shutdown they so desperately want I hope we can discuss today how undermining the sec's mission by furloughing 90 percent of your staff will affect this country and your

ability to protect our markets that said I want you to know that you're doing exactly the job that the American people want under your leadership is providing investors with the information they need to evaluate climate change risk you're reforming the stock market which failed investors during the GameStop trading events oh my God everything is politicized to exercise their votes over companies they own I'm also pleased to see that you are finalizing rules that will bring transparency to private funds like private Equity Funds and although

Republicans will likely claim that the SEC is implementing too many rules too quickly the fact is that you're moving thoughtfully and effectively in fact your SEC has issued fewer rules than the Trump Obama and Bush administrations at this point in their tenure and you're provided twice as much time to comment than is required by law the SEC is very much implementing the priorities that I and my Democratic colleagues championed when we were in charge and is shaping up to be the most pro-worker pro-investor Pro small business SEC says FDR this is insane the agency chair Gensler I

appreciate that you're here today even as you and your staff prepare to close the agency I hope that if nothing else comes of this hearing the American people will understand that this extreme magazine and stuff like this is his wife thinks that he can just get away with is wearing thinner than the Chairman's patient let's get on with it wow I yield back the ranking member yields back the chair recognizes Ms Wagner the chairman of the subcommittee on Capital markets for one minute thank you chairman McHenry yes

let's get on with it the sec's mission is to protect investors maintain Fair orderly and efficient markets and facilitate Capital formation unfortunately your leadership has undermined these core objectives sir none of the 50 odd proposals your SEC has proposed promotes Capital formation instead the focus has shifted towards imposing costly Regulatory and disclosure requirements equally troubling and potential violations of the administration administrative procedure act as recent SEC proposals lack a comprehensive analysis of market dynamics and their consequences especially for SEC rules that have been changed here's the way forward sir one

begin with robust engagement with Market participants to shape your thinking before proposing rules two conduct investor testing three economic analysis and and looking not just the individuals but the cumulative for do not ignore Congress when said when you send bipartisan letters expressing concerns about detrimental effects of the proposals Market Integrity I yield back will now recognize the ranking member of the Capital Market subcommittee Mr Sherman of California for one minute Mr gensley you've done more than anyone in government to thwart the creation of an efficient ecosystem that will allow corrupt politicians to not have to have hundreds of

thousands of dollars of cash and gold bars in their home when they could be discovered by the FBI you prevented a system where we can have Anonymous unhosted wallets providing an efficient uh method for the corrupt politicians of the future you are providing additional regulations which provide Clarity to the market participants and protect investors but according to a Bloomberg study you're actually producing fewer regulations than your predecessor um recent predecessors you're generally right except swing pricing and finally ESG is material to investors it will affect trillions of dollars of

investment decisions that's why Corporate America is trying to prevent you from getting that information to the investors a lot of times expired we'll now recognize the chair of the security I don't even know what that was actually no it's cringe um good morning um for five minutes uh for an oral presentation of his testimony without objection your written statement will be made a part of the record chair Kinsler you're now recognized for five minutes okay good morning chair McHenry uh ranking member Waters and members of the committee thank you for inviting me here today as his customer I'd like to note that My Views are my own as chair of the SEC and I am not speaking on behalf of my fellow Commissioners or the SEC staff for 90 years the federal Securities laws

and our work to oversee them have played a crucial role for the public both in good times and in stress times the core principles of the U.S Securities markets regulation have contributed to America's economic success and geopolitical standing at this remarkable agency we serve investors building for a better future and issuers raising money to fund Innovation while overseeing the 100 trillion dollar Capital markets where investors and issuers meet the essence of this captured in our three-part Mission protecting investors maintaining Fair orderly efficient markets in the middle and facilitating Capital formation as chair uh Wagner mentioned earlier and chair McHenry the

SEC is the cop on the beat watching out for constituents the dedicated staff of the agency does an extraordinary job with limited resources America is blessed with the Lord sophisticated Capital markets in the world but we cannot take this for granted even a gold medalist must keep training that's why we're updating our rules for the technology and business models of the 2020s my written testimony details those efforts and I'm sure I'll get questions on this rule or that role but I'd like to just point out overall a context we're updating our rules to promote the efficiency integrity and resiliency of the middle the markets in the middle and

it helps Capital formation on one side investors on the other and we do so with an eye on those investors and issuers and making sure the markets work for them rather than issuers and investors working for Wall Street and the markets in the middle we're working to help lower cost increase access and promote Financial stability and each of the proposals we've made in the last two years further this three-part mission given the authorities granted by Congress and our division of Economic and risk analysis provides robust economic analysis which consider the cost and benefits as well as effects on efficiency competition and capital formation is Congress mandated we greatly in a benefit also from public

input regarding economics the policies themselves are legal authorities and we get those that feedback and in the last two years we've provided the public ample time to comment with an average 70 days to comment from the time the proposals published and since January of last year 22 we've always had a minimum of 60 days from when it's on our website sometimes as long as 100 days when comment periods close we often continue to get additional comments through meetings and otherwise which staff has considered as well including really helpful letters from members of this committee based on the public feedback the staff in the commission consider possible

adjustments to the proposals and whether it's appropriate to move forward with the final rule this process normally takes 12 to 24 months and we move to adopt rules only when the staff and the commission think they are ready to be considered we're focused on getting it right based upon the economics the authorities promoting the mission somebody's got the coinbase field uh the phone in the top right now this is showing the coinbase field that's hilarious sorry I'm going to go back so I can see that we finalized 24 rule makings nearly all of which have changed from the proposals based on the public feedback including from members of this

committee I'm grateful to work alongside a remarkable staff and fellow Commissioners to promote efficiency integrity and resiliency with the possibility of a government shutdown I would note as your our oversight committee that we would be down to a small skeletal staff about seven eight percent of our staff everybody else being furloughed normal oversight of the markets given this will not be possible in the SEC during the pendency of a shutdown so we look forward uh to the day when we can get back to work hopefully and fulfill our mission in support of the public thank you okay let's find this coinbase Shield 12.

there it is right there is there stand with coinbase right in the corner only when the staff and the commission think they're ready to be considered team you say the Bitcoin ether Litecoin and Bitcoin cash are not Securities um so I want to focus today on bitcoin uh why do you believe Bitcoin is not a security um thank you uh chair and I think you're referencing uh remarks I met as a professor at MIT um and as I wrote in that paper at that time uh it was really about something called the Howie test and the Supreme Court it's the law of the land talks about if there's the public is anticipating a profit based on the

efforts of others uh and as I think I noted in that paper back in 2018 uh I didn't see other fields back but your review on bitcoin you've made comments on this you believe Bitcoin is is not a security is that true well I think the staff of the SEC have also uh and the prior um just asking you this question this is not a gotcha I thought there's going to be an easy softball into a harder question do you think Bitcoin is a security you know I think I've said this in the past that I think that I'm asking you to answer my question now this is not supposed to be hard I know I said it does not meet the Howie test which is the of all the land about being so it doesn't mean how we test so therefore it's a commodity is that fair

I I I would say it's not a security and then the test is otherwise for other laws well the cftc says they don't have the authority uh uh over uh Bitcoin uh and digital uh Commodities uh do you think uh legislation is necessary to protect consumers uh in the world of digital Assets in particular given that Gap around just Bitcoin I I think as I've testified here in this committee room four years ago as a private citizen that there that for the parts of the crypto ecosystem that are not Securities though under the Commodities exchange act the cftc has some anti-fraud

authorities they don't have what's called plenary authority to write rules around that and as I've said in the past uh I've been supportive of our sister agency if I can say that an agency that I once was honored to chair and I like quite a bit uh uh doesn't have that plenary Authority and if Congress move forward on that that could help them so spot Market the spot Market lacks a regulatory Paradigm and uh established uh established law uh so should should we take action there uh I'm sorry I'm not sure I follow the U.S stock market you're talking about the

Securities no the cftc I'm continuing with your answer my follow-up there was because there's not a regulatory remit that Congress has given them clear regulatory remit we should step in so let me just move on um you've I've talked about your non-compliance with document requests made by this committee you believe the commission must vote in order to produce non-public information to this committee do you not uh under the uh exchange act I do believe that the commission so have you scheduled to vote necessary to provide the non-public documents to this committee we uh I I think have been working with your staff and believe in in oversight

of this committee we've provided somewhere over forty thousand Pages nothing as I said in my opening statement nothing that was non-public did you provide in fact you produced one of the letters that we wrote to you as responsive documents it showed the absurdity of it um so the general counsel's office has indicated to my staff that after a 10-week review process these documents are ready to be transmitted it just needs a vote when do you intend to schedule that vote we continue to work with you and your staff we've had the commission has approved that some senior staff will be taking transcribed interviews I think with your staff and we but that is not responsive to my

document requests this should not be the hard work of a chairman to answer these questions you have 30 major rulemakings but you won't even provide basic documents to us your unresponsiveness is non-compliance and we'll have to take action if you're not willing to commence you have a 10-week review process and you've not provided documents furthermore you haven't even done the economic analysis of your interplay of these major rulemakings that are going to affect anybody who owns a stock Bond or any type of security and so you've got serious questions to answer to the public and to Congress and we intend to get your compliance we can do it the easy way or the hard way nice and with

that I yield back nice the ranking members now recognize for five minutes uh thank you very much there are a number of questions that I would like to ask but since we started out on VidCon let's go further into crypto chair Gensler I've heard you often say there is mass non-compliance by crypto firms part of the marketplace today I'm very concerned with what sounds like gross violations of the law that end in investors getting ripped off the failures and fraud of crypto firms like Terra Luna for example cost investors as much as 60 billion dollars which was larger than the Madoff Ponzi scheme in 2009 I know that the SEC has brought

enforcement actions against Sam bankman freed and FTX the failure of which cost investors nine billion dollars since we're talking about you know everything today can you please describe the actions that the SEC has taken to shut down crypto firms and recover funds from harmed investors how much in penalties have defendants paid in cases you have settled or crypto firms getting the message um thank you yeah all crypto firms insurance that this is a field that's uh Rife with she's just underhanding him manipulation and scams and the American public is still getting hurt by the non-compliance in this field in terms of

the sec's approach it's both through policy and rulemaking and yes and enforcement uh the SEC had finalized rules with regard to special purpose broker dealers and crypto and we also addressed questions that came up about crypto exchanges uh the custody of crypto in a custody rule that I imagine we'll chat a little bit about later today and even best execution but unfortunately as you noted we've brought numerous cases uh in this field to try to protect the American public and be a cop on the beat with regard to so many of these uh schemes thank you very much I just wanted to

make sure that the opposite side of the aisle who protects uh too often in too many different ways crypto firms that they know what you're doing let me move on I want to ask a few questions so politicized um the impact of the government shutdown on sec's operation chair Gensler approximately how many people work at the agency and what percentage will be furloughed during a government shutdown see this is why they're working together see Gary genzer wants more money for the SEC and uh Democrats want to be the side that hates crypto so we'll we'll be down to a skeletal staff

which divisions would most be impacted and described for us what uh to do what these divisions do it's really across the whole agency but the the bulk of our Workforce is in examinations and enforcement and disclosure review uh but let me say what what the public won't have they won't have somebody really at full force overseeing the market for companies that want to go public we won't be able to really review the documents or what's called documents going effective if you want to do an initial public offering which is so critical to a capital formation

we will keep open I want to say this for the public we will keep opening our tips complaint and referral lines we will keep open comment files so people can still submit comments on our rulemaking um this doesn't go anywhere like but we won't really have individuals behind the scenes to follow up accept about public offerings I've worked with the opposite side of the aisle to improve the ability of those who want to do IPOs but as you explain it this will have a negative impact the shutdown perfect questions I I think that's just a practical reality yes

what happens if a whistleblower comes to the commission with urgent information that could protect investors would there be staff to process this no he's going to ignore it anyways deploy resources in response to this information though we will be able to intake uh there won't be the usual investigative force of individuals to follow up as readily unless it's an emergency and it's about specifically protection of property what will happen if there's a major disruption in the capital markets operations and infrastructure doing the shutdown could the SEC be there to respond it's a very good question I mean

um senior leadership would be there but again we'd be down to a skeletal staff and so I you know the latest times expired I will now go to the fight we'll now go to the vice chair of the full committee Mr Hill of Arkansas for five minutes thank you Mr chairman Mr Gensler it's good to have you I want to start out today and talk about Equity Market structure as a as a topic uh just yesterday Congressman Foster and I sent you a letter signed by 16 Democrats and 16 Republicans to express our concerns about the equity Market structure proposals that the commission has initiated the letter judges you quite simply to stop your rulemaking on that

broad set of proposals until you finalize the trade execution data rule the so-called 605 data Rule and that that be done first so that you can rely on that data for a an appropriate rulemaking and this speaks to Mr mchenry's point about the interplay between the rules which uh contrary to the ranking member I think there are 50 pending proposals many of them interact they are confusing and sometimes in control with each other and I think this is a classic example and I think it's particularly true where you're failing to do a rigorous cost benefit analysis for many of the rules for instance the sec's dealer proposal which uses the word uncertain 15 times

to describe its impact on efficiency and competition for the most important Financial Market in the world U.S treasuries so Mr chairman I would just say this is not Maga Republicans that are sending you a critical letter of concern it's a very bipartisan view 32 members of this body that think the SEC should reconsider would you wait for the rule 605 data but I don't know how to finish the other Equity Marketplace um I I thank you for the letter I did read it last night around 9 30 when it came in and uh it's part of our comment file we'll take it and and think of it very seriously but I would say in terms of the equity markets the rules have largely not been updated since 2000 that

may be but that that means that we need to do it in a comprehensive way in an interoperative way but make sure we have the right data so I'll take your short answer is know that it's a comment but I really urge you to get these Equity markets proposals in order and to rely on data and not just uh emotion or one memes dot event to make policy let me we change subjects let me talk about my favorite kitty cat which is the cat Consolidated audit Trail for over a decade this bad idea has been floating around the commission since the flash crash in 2010 to collect and store private personal information on every American and every American with a

brokerage account and every broker dealer in my view this is a massive Overkill this is unnecessary invasion of privacy this is a massive new tax on the brokerage account of individual American citizens and maybe worst of all considering the nine years I've been here this is another massive centralized government database that's going to be hacked like the IRS like the cfpb like OPM and so uh I've got real concerns about it and I continue to express those for Mary Jo White for Mr Clayton and now for you in fact you inherited this Albatross why don't you just bury it and say that we're not going to do the cat

though I inherited not only from them but I inherited from my dad a real allergy to cats and it's real oh my God it is going on yeah well we don't have time for that I'm reclaiming my time we can have a cat visit we can do the kitty part later you know what a Target it is this is our country's leadership do you know what that is I'm I'm familiar with exam letters yep and do you know what a blue sheet is uh sir I'm I'm generally familiar I don't know where you're headed but I'm generally familiar and so and you know that all of our markets have regular Daily Inner day overnight Global Market surveillance on trading right that's a general feature of all of our sros right you agree with that uh sros are

responsible to do that sir yeah I understand that and you regulate the sros so what I'm suggesting to you is there's no justification for capturing all these trades when you have right now Market surveillance data available to enforcement Division and you can right now do a sweep exam through a blue sheet which is where you go to large Traders and you look at everybody who traded in apple you can get all the pii you want because you have a probable cause for doing that and that's why cat I think exceeds what you should be doing why is the blue sheet targeted exam process inadequate for you to do your job so I think you raised a good question but the Consolidated audit Trail gives the self regulatory organizations and the SCC a

look at those orders and matches up sometimes they've got the ability to do that now they don't need to capture everybody's trade in every retail brokerage account in America Mr chairman I yield back gentleman yields back will now recognize the ranking member of the Capital Market subcommittee Mr Sherman to California as the chairman points out it's about Capital formation you're at the nerve center of the world capitalist system where capital is deployed to operating businesses if we have a shutdown of the government I think it's already been pointed out by the ranking member that we stop all IPOs in their tracks

does this also apply to companies that are already public but are issuing additional shares and this would also apply to new Bond issuances um I'm glad to follow up and have staff chat with you it's more nuanced it really depends on whether they have filings uh I hope we get Tom emmer so a few of them Manny would still many public companies would be foreclosed from doing additional offerings others would be allowed it really depends on the nature of their filings so a huge portion of our 100 trillion dollar Capital markets yes are not available a huge portion of the initial Capital

that would be raised for operating businesses would be blocked we also as I understand as far as providing Assurance uh for the honesty of markets you'll continue to collect emails as they come in but you won't be doing any investigations uh uh or opening any any additional investigatory files correct it's it's it's really prescribed and narrow it relates to a 19th century law called the inter deficiency act but we we can protect public property uh but it's okay so nobody's going to be stealing your computers but uh you're not you you you're not going to be uh it's it's going to be the wild west on on

Wall Street all while we're fighting for Capital with other countries and other Capital Market systems and we put up a sign that says you know closed I can't think of a worse thing we could do to American capitalism um swing pricing um I think it doesn't achieve its purpose we should want people to invest in mutual funds and and diversify and invest in America uh but the swing pricing rule you've put forward has been criticized by a letter signed by the vast majority of Democrats on the Capital Market subcommittee uh many Republicans I think the vast majority there the consumer Federation of America

uh it seems to be an unfair rule in that giant players can re can participate in cits rather than mutual funds get the same benefits not be subject to this rule uh investors will be told you may not get your net asset value people who live in the Pacific time zone are disadvantaged um any chance you'll be taking this role back to the drawing board um we've got a lot of comments I'm very familiar with the letter that you and representative Wagner co uh uh authored um it's really going at a core feature that when you have a mutual fund if you redeem in that mutual fund you should redeem at the right price so that the

remaining shareholders don't get dilution uh it works well at a couple times less well in stress times but we're taking all of these into cons I I I understand I'll simply point out that for many years thousands of mutual funds all competing for Capital could have adopted this Rule and not a single one of them thought oh this is how this is what investors want this is what will seem fair to investors you've got the safeguarding rule I'll simply comment that I think we need a safeguarding rule for uh uh uh for intention assets has that I I would hope that you would if you feel that tangible assets such as

real estate need a safeguarding role that you would write a a separate role is the safeguarding rule that you're writing pretty much structured around uh intangible assets such as crypto no no it actually it's it's Genesis it came from Congress itself it's part of Dodd-Frank 12 13 years ago there was a new provision that uh the SEC addressed the custody of all customer assets by investment advisors so it expanded it from Just funds and securities to all assets that was the job I would hope that the rule would have separate sections and a completely different approach for real estate on the one hand and crypto on the other

real estate is is the the the title is public and the asset isn't moving anywhere and uh and and intangible assets and crypto are very different um I believe my time has expired uh it does have separate sections but we'll take that under advisement and it's so good to see Brad Sherman just looks like it retired makeup uh will now recognize the gentleman from Oklahoma making his uh Valiant return after uh tells thing with cool I would have you back Frank thank you Mr chairman and I very much appreciate that and I would note to my college time since I've set this far down in a Committee hearing

but after my interaction with a thousand pound bull I'm just happy to be here so what is going on what is this book ask your name is consent to restore the children's time we're happy to have you back thank you and my opportunity to visit with my old friends talking Encounters in many discussions uh before I begin to reiterate a few points made in the bipartisan letter that I sent regarding the sec's two proposed rulemakings on security-based swaps and security loans and I'd like to enter that it will relate or into the record Mr chairman without objection these proposals I believe could impair Market liquidity while increasing risks and cost and to avoid unintended

negative consequences the SEC should study the data for regulatory purposes before moving forward with public dissemination this is consistent with the Dodd-Frank Act and I hope the commission will give serious consideration to this approach now chairman ginsler I'd like to focus on the proposed rule branded as the safeguarding advisory client assets the proposed rule would require would impose requirements that are inconsistent with the cftc rules and you've spent a good bit of time working on cftc rules in a past life and would indirectly give the SEC I fear authority over the cftc's regulated markets and in addition to being outside

of the sec's sec's authority this would create the significant problems I think across the entire financial markets have you consulted with a cftc on the impact of the proposed Rule and if so for curiosity what was their feedback first representative Lucas it's so good to see you and your letter uh with regard to security space swaps uh not only gained my attention but there are many people at the SEC I would say this is representative Lucas's letter will you please take a close look at it but on your topic and your question about safeguarding of assets the staff has consulted uh with uh fellow Regulators at the cftc about that

safeguarding rule taking their thoughts into consideration uh we're we're some time away I mean this this was only proposed earlier this year and it usually takes 12 to 24 months before we even consider adoption but I think that there's there's a there are there are paths forward in terms of the intersection between their rule 1.25 and these custody rules I just think it's imperative that the SEC refrain from applying the proposal to cftc regulated markets and I and I hope that you'll be able to commit to that even if it means perhaps at some point uh withdrawing the rule entirely now second question the commission is also recently proposed a rule regarding

the use of predictive data analytics used by broker dealers and Investment Advisors the proposed rule casts a broad net over what is considered a covered technology and I quote directly from the rule a covered technology is defined as an analytical technological computational function on an algorithm a model a correlation Matrix or similar method of process that optimizes predicts guides forecasts or directs investment related behaviors or outcomes what a mouthful the included economic analysis explains that the rule would require a substantial resources to comply with and would prevent smaller firms from

entering the market or adopting new technology at all so chair Gensler could you clarify what technologies are covered and is the intent of the rule to make it difficult for firms to employ certain kinds of technology I hate that how there's like this other version of Finance called Chad VI that is also relevant here technology neutral and it's only about one really core thing is that I would like this advisors or broker dealers interact with investors that interaction that if they're using as you said a covered technology for predictive data analytics that they continue to put the investors interest ahead of their own and they not in Reverse put the investment advisor's

interest ahead of the investing public that that's the core of this proposal I'd simply add that given the rapid advances in machine learning and generative AI the United States should lead the way in the development of Innovative Technologies that would unlock new economic opportunities and we should be careful not to be so hostile to new technologies that we stop innovation in its tracks with that I'll simply say Thank you Mr chairman and to Mr chairman I spent seven weeks being calm and at home I've not been that calm and that long at home since 1986. I'm happy to be back with all of

you and with you Mr chairman you're back well Frank we're happy to have you back and as a former chair of two com well current chair of one and a former chair of another committee uh we honored the old bulls and I missed the ranking member too [Laughter] well now uh recognize talking Maxine Waters Another ranking member of full committee Mr Meeks in New York he obviously does not actually miss uh and thank you Tim and ginsler uh for appearing before us today now over the course of the last few months I've had the opportunity to both uh ask the sec's director I can't believe this check right now and the director of the division of investment management about the private

fund rules in particular I've asked about revisiting the economic analysis uh to ensure that it adequately considered the disparate impact on emerging minority and women-owned asset management firms minority and women-owned businesses and historically under invested communities Dr Walter assured me that the SEC shared my concerns and director birth that's who testified that the economic impact analysis was expanded to look into these concerns so my question to you is can you one can you confirm that the economic analysis was expanded and if so can you speak to the specific changes

that were made in response to the findings from that expanded analysis um the the role as other roles do consider is the effect on small businesses and in this role particularly the economic analysis looked about small businesses including those that are women-owned and minority owned investment advisors running private funds so I would like to follow up on that but I got so many questions I want to ask you uh because it is you know really important about uh the the to get more details of what those findings were but I'll ask you more about that uh in writing and get a response because I

want I want to shift to a related issue that I find to be disturbing on page 553 of the private uh funds rules the commission seems to seriously suggest that smaller investment advisors who we know are likely to be predominantly minority and women owned consider reducing their assets under management to avoid registering uh with the SEC to help mitigate the impact of the rule to them Mr chairman against we know that minority-owned firms are three to four times more likely to fund minority a minority Enterprises and their portfolio companies so wouldn't telling

these firms to stifle their own growth perpetuate the lack of diverse representation in the industry and therefore decrease the amount of funding going to diverse entrepreneurs um as as the economic analysis noted and you just read There are often some firms whether it's in a rule like this or other uh rules that are right at a cut-off point you know where they might be red registered and regulated and not that they might make different choices but overall this rule is actually uh really helpful because it promotes competition and transparency the biggest fund managers would have to provide

greater transparency to their investors and the smaller asset managers can actually benefit from that greater transparency and competition around the side letters that they may be cutting with large asset uh Pension funds and the like so it's really a balancing of of these economic considerations it was pro-capital formation it was pro-investor because it promotes transparency in the middle of the market that asset manager would have transparency about their fees their performance and these so-called side letters that they enter into well I you know I I just have problems with it because it seems to me again you're

telling these asset managers uh to uh to not grow uh to not to continue to build where they can do more because of the people that they serve so it's a it's an issue for me but um of which I'll follow up on uh you know under your leadership the SEC has been you know incredibly active and uh and then I'll leave it to others to discuss the pace and the breadth of the commission's rulemaking but what I wonder is whether or not the SEC considers how their proposed rules will interact with existing and Draft rules during the rule making process particularly when it comes to economic

impact of the finalized and pending rules and do you think there would be any value to doing a whole holistic analysis um we do in each uh economic analysis which often runs between 100 and 250 pages each of those considers other rules that may have been adopted and adjust the Baseline in each of those analyzes the time well now recognize gentleman from Texas Mr sessions for five minutes Mr chairman thank you very much and I appreciate the gentleman my friend Mr Meeks for his conversation with chairman chairman welcome once again to the committee good to see you sir thank you

very much Mr chairman I I think that there's a lot of happy talk and smiling that takes place from you and your agency as they come up here and they try and talk about two principles of listening to stakeholders and Industry participation and yet I think you're hearing across this committee a wish that we could have a better relationship with you and your entire organization and we have prodded them sent letters done everything nice that you can do and yet we show up here and we find a way to

provide feedback we'd like to sincerely turn that around as you know you and I spoke a couple years ago about an issue that still is unresolved because the SEC would not even let this firm know what their problem was and you told me it will take at least 214 days because that's how long it takes us before we're able to turn issues around when you're Fort Worth is talking about already knew the answer and I think it's just kind of of action on behalf of the SEC that causes members of Congress to react the way we do Mr chairman I'd like to uh turn to an issue last November the SEC announced a

massive increase in enforcement fines 6.4 billion dollars in 22 up from 3.8 billion and 21. and you have launched a regulatory Crusade against the financial service industry through enforcement you've told us that we see this can you please tell me what the money from these enforcement actions what you've done with it and where that money goes um first sir if I may I think that matter you talked to me about a week or so ago we filed a a civil litigated matter against that company so I think that's all a matter of public record

well then I've learned that now thank you but but for the two years prior to that there was attempt to be resolution and uh you even blocked that company from their Council who was very capable from engaging in that knowing what that was to where they could have corrected that or found a way to work with it because it put at least 50 million dollars directly at risk Mr chairman can you explain where the money from these enforcement penalties is a winding up oh I like this the number of places much of it goes into what's called Fair funds Congress helped set up a process where the public

can actually get money back those that are harmed can get money back and some of it some of the penalties and so forth go into the U.S treasury that some some in Fair funds and back to those that have been hurt but some of course also into the U.S treasury takes the money in follows the laws that have been established and and that is yeah we're funded separately we're of course we're appropriating and that we're funded by fees that are fees on transactions in the yes sir I just wanted to make sure that it it's it's as a result of what Congress has established with the fair funds about what they would do with that money and your test testimony today is that's what

you've done with the 6.4 billion dollars not not all of it sir well then please tell me what I we can add a comma and add the rest no we can follow up with the details because of that six I am interested in following up the details and I would ask that uh your staff except just like uh Congressman Lucas sends a staff in your staff knows oh we got a letter from Congressman Lucas let's respond very quickly here I'd like to send you a letter today asking for those details thank you the actual breakdown is a matter of public record we put it on our in our financials each year I just don't have it memorized well that's that's fair I would not either oh

boy Mr chairman uh we really I think would like to on a bipartisan basis up here have better interaction with your organization this guy is he's asking good questions he's really ineffective calling on a bipartisan basis for us to do that we believe if we express our opinion you should Express yours back not just to lay that I want to thank you for being here sir and I will engage you on this matter Mr chairman I yield back gentleman's times expired someone from Georgia Mr Scott's recognized for five minutes all right thank you very much uh first of all uh chair Gensler I agree with our ranking member Miss

Waters hope I believe you're doing an excellent job excuse my call uh an excellent job at a very difficult and challenging child looks like he's about to fall apart economy and especially our Securities markets um on July 12th my good uh Republican friend congressman Frank Lucas and I sent you a follow-up letter with respect to the sec's proposed rule regarding the impact of publicly

disclosing Preparatory positions in large security-based swaps above certain reporting thresholds specifically um Congressman Lucas and I we raised concerns with how this move could impair Market liquidity and hinder the sec's core mission to maintain fair and orderly and efficient markets so my question to you is I at first I know you have previously said you understood the

law to require some public availability of this sensitive information but where can you expand on whether widespread public access to large SBS positions could in any way impair the ability of marketplace we got places to be man operate their trading business or limit their ability to hedge effectively that was all of his time we continue to consider at the staff level of the commission level not just your comment letter with representative Lucas but

others about this but security-based swaps can be used to basically replicate the positions that are taken in the in the stock and bond markets but particularly in the in the uh stock markets and you might recall about two years ago there was a family office called arcados that did that and did that in quite some size so that's one of the reasons not the only reason but one of the reasons is we look at this we say congress gave us this Authority this is one of the remaining authorities we had not addressed from Dodd-Frank and so we took it up we put a proposal out about the possible

requirements to report to the commission and then in some cases report publicly these large either credit default swaps or total return swaps that of course credit default swaps were at the center of the 08 crisis and Total return swaps were at the center of this this one example this archangos example yeah now let me ask you this question do you see any risk in allowing the public to take advantage of this information for example by facilitating front running and copycat trading which could drive up the costs

for all Market participants I I believe we've gotten that comment from a number of commenters it's taking up in our economic analysis excuse me taken up in our economic analysis but it's an important issue of all public transparency the markets can benefit from transparency but it's sometimes there's somebody that had an advantage of the opacity so when I was on Wall Street we used to have a saying a little bit that the firm I was at the darkness was our friend and and it was about sometime opacity helps make more money as a dealer but it's not necessarily the case that that the markets themselves economists tend towards the transparency helps the

proper pricing in the markets and also helps Capital formation well I'm delighted with your presentation I understand with low economic and finance that I handle at times uh particularly with the stock market keep up the good job don't get discouraged we'll get out of this mess in our financial markets thank you well now recognize gentleman from Florida Mr Posey for five minutes uh thank you Mr chairman uh good to see you Mr chairman good to

see you sir in spite of the SEC Inspector General and GAO recommendations SEC continues to assert that as an independent agency the commission is not required to do the same kind of regulatory analysis and cost benefit analysis as other agencies um why is the agency so defiant about the suggestion to be accountable as as other agencies are Congress put in our statute that we had to do uh economic analysis and so we follow that and then after a number of

court cases uh in the early uh 20 years ago or so we updated our guidance to ensure that we followed congress's mandate so we do economic analysis again sometimes measuring in a couple hundred pages in every one of our releases we get feedback from the public and then we adjust we modify so the Inspector General is wrong you don't need to do any further in any further analyzes well in fact we do need to do analysis because Congress mandated it's called we have to analyze the efficiency the competition and the effects on Capital formation and in doing so we lay out an economic Baseline and then we look at it

we have to look at alternatives to the proposal reasonable Alternatives and we look at costs and benefits and so we do all of that and and any rules are in conformance with the administrative procedures act yes we do that in compliance with the administrative procedures act but also Congress added these other Provisions in 1996. where's Tom emmer I want Tom emmer a court interpretation to that in 2005 and so forth we updated how we did this and we followed guidance that's been placed since 2012. so I think I'm the fourth chair that you know we're following the similar guidance for 11 years now so does the commission assets and

analyze cumulative economic cumulative economic impacts of the rules that it makes you see what and the inner relationship with other agencies we analyze in each one uh a baseline as I mentioned so if for instance there was an interaction and we finalize a rule uh then we necessarily update the Baseline for the next consideration for the world as it exists at that point in time all right in your climate disclosure rule um are you requiring that firms pursuing ESG directed Investments also disclosed the risks they face from favorable

regulations non-materializing or climate subsidies drying up or slowing down um The Proposal is really to capture uh uh the risks that investors want to understand the proposal was about both the opportunities and the rest but I think you did use this word it's about materiality we're not a climate regulator we're really really disclosure-based regulator and thousands of investors more than thousands but representing tens of trillions of dollars of assets today are making investment decisions and I'll share a statistic with you of the Russell 1000 the top thousand companies

in the U.S 81 percent currently make climate risk disclosures 57 percent disclose their greenhouse gas scope 1 and scope two so what we're trying to do is just try to bring some comparability to that in a sense to for investors but also to avoid some green washing frankly so bring some comparability that that which is already happening uh based in your strategic planning what's your proposed rules is most vulnerable to the major the questions Doctrine set down in West Virginia versus EPA um we we really do everything we can to stay within the laws as Congress had

passed it and how courts interpret them we're familiar with the case the Supreme Court case it's the law of the land that you mentioned and we take a very close look at that uh to ensure that when we finalize rules it's within the laws and how the courts interpret it are you trying to resolve any of those major questions at this time well I I would broaden it out sir it's like any time the Supreme Court speaks to our broadly the administrative States authorities we take a look at that and we we take a look at every comment we receive from the public to stay within our authorities children's thank you well now recognize so much to Missouri Mr Cleaver for five minutes come on Mr

Cleaver do something exciting thank you uh chairman for being here today um I'm one of those people who believes that there are such a thing as climate change oh God and the scientists uh I agree with the scientists I guess uh most of the warming that we are experiencing actually uh took place over the last 40 years and um sir this is a Wendy's last nine years uh are the warmest

uh temperatures that we've had since modern uh oh my god get your thoughts together whether temperatures and we're talking to the SEC I'm from Kansas City Missouri uh the Missouri it's about climate change longest water system in North America it uh uh we're talking about water systems with the Securities Regulators its way all the way through Missouri and then meets up with the Mississippi uh in uh St Louis uh it goes through seven states in the mid-rone region I'm missing that is that we are experiencing all kinds of

events along the Mississippi the Missouri River system um we had droughts floodings are becoming a more volatile and whether events are becoming more extreme in impacting the Missouri River what the is going on this becomes economic economic uh economical in the sense that the the low water levels which are reaching sometimes record lows uh disrupts business we do a lot of barge traffic trafficking on the Missouri Mississippi and that is being

disrupted and so the the crisis puts them to question our viability and long-term dependability so I I I was pleased that the March uh last year that you you the SEC released the proposed rules to require public confidence to make a variety of quantitative and qualitative disclosures regarding climate related risk um is there any company any kind of economic interest in the United States that you think would be immune to [Music]

uh uh I mean from climate risk as we are uh dealing with this well we may not be dealing with it as powerfully as we should uh but is there are there any exemptions that you can think of that would uh companies or corporations would not be impacted or they're not or not he's asking a question that's trying to lead into you know every single company it will be equally impacted by climate change and that's why it's a significant deal which is just the red versus blue debate it's a matter of investors making investment choices for some companies uh investors are getting disclosures and we're trying to

bring some comparability to that disclosures some companies uh it's viewed as material and some companies it's not um that's an important distinction uh of course but there's so many different sectors and so many different Industries in this country and we're Merit neutral but we're not disclosure neutral and right now 80 plus percent of the top thousand companies are already making disclosures it's it's really on our responsibility to bring some consistency and comparability for investors to get decision useful information yes I'm not suggesting that you are the EPA or uh

you know some kind of a climatologist make sure that uh the SEC continues to uh this is just turning into a David trolls Congress hearing not it's not even about Gary of what's going on uh uh dangerously uh with with climate change and that it will all Impact corporations I would say this we have heard we have 16 000 comments we have heard very consistently from investors that they find this information decision useful and they would benefit from more consistency and comparability in the information there

frankly already receiving uh um so that's what we're focused on thank you Mr Jim gentleman's times expired that was recognized worthless sorry the chair of the National Security subcommittee Mr lukemeyer for five minutes thank you Mr chairman chairman Gensler my good colleague here Mr Cleaver and I wrote to you in May regarding sec's conflicts of interest reproposed rule number 192 prohibition against conflicts of interest in certain circulations and our concerns about the potential treatment of mortgage insurance linked notes our letter was filed under the bulk of all comment letters and the first sentence asked for you to they were requesting a

clarification of the language okay so the last time we did this when was this this was in like may I think because when Gary had his last hearing and I believe in front of this same committee um and like it started off kind of like how this one started off where it started off with crypto McHenry came in and was like yo it was ether security or is it not a security and then Maxine Waters talked and it kind of pinged between crypto and not crypto for a very long time housing market and like sometimes you would get like someone Brad Sherman talked about crypto then Tom emmer came in and just grilled him um that one was more crypto than this one is so far so like it's kind of a crap shoot because every single member of the finance committee gets to talk about

whatever they want to talk about it sounds like this current instantiation the finance Community doesn't really care to talk about crypto as much um but like he the thing is like you have to hold on because Tom emmer could be next or whoever wants to talk next could bring up crypto we just don't know until the time comes private sector in other words you know there's a crap shoot for these companies to be able to allow the reduction well the spread of risk and then of course the reduction of cost uh the question is pretty simple would you support something like that I I think that if if I understand the question that mortgage Originators rely also on mortgage insurance that's an important

part of that that I agree that's an important part of the market okay uh in our letter we say that the rulemaking May unintentionally um uh prohibit private insurers from We're carrying reinsurance by the capital markets through these mil ends and which would negatively impact home buyers lenders and taxpayers are you considering uh changes to the rule to clarify the treatment of mortgage insurance link notes without pre-judging any adopting release we're considering all the comments including yours but but these individual letters you reference Congress put a mandate that we had to help ensure that um Underwriters and sponsors of certain

mortgage securitizations not be betting against their investors and that's that's what we're trying to do Mr Gensler we're the letter should not be canned with the comment letters it's a request for you to clarify what you're trying to accomplish here and the letter to point out what we need clarification oh so we would please appreciate a response thank you for that um I also sit on the Chinese Select Committee and as a result of my position there and my chairmanship of the National Security and illicit financing sub chair here um in 2022 the pcaob inspection reports of mainland China and Hong Kong accounting firms which audit U.S listed

Chinese companies were scathing and a reminder that financial statements produced by the CCP control companies should never be trusted both reports showed unacceptable rates of part one day at Point a deficiencies which are deficiencies so large that pcaob staff believe the audit firm failed to obtain sufficient audit evidence to support its work on the public company's financial statements essentially the audits were useless is it correct that are the holding foreign companies act accountable act these two firms which fail so potentially will not be inspected Again by the pcaob for another two to three years the uh I I'm not familiar enough with the pcob's rotating schedule but it is

accurate that when the pcob goes into inspect an auditing firm in any country they sometimes aren't able they don't have the staff to go in on an annual basis well you know the the the the premise is correct there where we're they only have to do it every two three years and so um Mr Sherman and I have introduced a piece of bipartisan legislation they require them to have an annual audit these are these are very uh as we saw in 2020 there are a thousand companies on the exchange now it's down between 250 and 300 a lot of them are Shale companies and when we're threatening audit suddenly they disappeared the fulling of our Capital to the Chinese companies uh and Slash the Chinese

government and Communist party has got to stop and so we've appreciate your support for something like that and um just quick comment yes or no look I think it's really important if somebody wants to issue stock in the U.S they need to comply with their laws China that's very important thank you very much I yield back gentlemanuel's back the chair now recognizes the gentleman from Connecticut Mr Himes for five minutes thank you something exciting thanks for joining us today Mr chairman I want to talk with you for three minutes or so about my ongoing efforts to codify uh insider trading into law but I do want to take a minute here since we're on the verge of a government shutdown to just see how that affects you and your organization

um it's sort of taken for granted around here that a shutdown is going to occur because my friends on the other side of the aisle can't find the coherence to pass a rule on the floor much less do what we know needs to be done to avoid a shutdown which to pass a bipartisan continuing resolution the Senate has figured that out they're working on that we'll figure that out eventually in the meantime to demonstrate the importance of doing that we are going to shut down the government because of some Maga extremists now we get asked all the time about the very visible stuff uh we'll be treated in the next couple of weeks to the site of 19 year old Marines and sailors lining up at food banks because they don't know that they're getting paid SBA will be shut down they will not be able to lend to small businesses and

those small businesses may go under as we could go on with all the public stuff but you lead an organization that has an awful lot of people who could be making a lot more money at a bank or at a law firm who are going to be told that they're inessential who may be furloughed so let me just give you a minute or so here I'm curious even though it's not going to make headlines what what would a shutdown do to morale and capability inside the Securities Exchange Commission um it's a remarkable dedicated staff but we're looking at probably 90 to 93 percent of our staff will be furloughed so we'll be down to skeletal seven eight percent of our staff in terms of what it would do for morale I think that history shows because we had one of these in 18 and 35

days at that point in time that it's it's hard on people it's hard because they're not getting a paycheck it's hard because as you rightly say they can get jobs at law firms and elsewhere and go you know and they're just really dedicated public servants in terms of the markets I would say if a company were deciding to go public or raise offerings they'd want to go effective before Friday if they're ready to if not they might be in a in a sort of uh subliminal subliminal state where they can't access the markets uh because we can effectively review those let me redirect you for a second to okay companies raising Capital but your SEC is a Whipping Boy you know that but the

truth is the organization is full of people who are out there Prosecuting fraud who are stopping insider trading um are we going to see if there is a meaningful shutdown fraud go unprosecuted insider trading just you won't have the capacity to address these things which hurt the American public correct yeah while somebody can still file a tip complain and referral somebody can follow whistleblower there won't be the people on the other side to really review it and investigate it thank you okay speaking of insider trading Mr chairman um uh I want to just briefly discuss with you something I've worked on for seven years right now which as you know um is trying to Define insider trading in law uh it's not defined in law today as you know and as a result we have

court made law Newman Solomon martoma overturning each other creating a great deal of uncertainty prosecutions being overturned um uh convictions being overturned a great deal of uncertainty I'm a believer in this idea that if we're going to send somebody for jail we should be very clear about why we are doing that um so I'd love to get a minute or so from you Mr chairman um where are we would we benefit from a codified statue on insider trading law would that remove some of the uncertainty and remove some of the chance that the courts will overturn your traditional activities I I think that we've had the benefit at the agency of robust as you said largely

Court made law from the 1980s on and you referenced some cases even the last six seven years but I think we've provided you and other members if I remember technical assistance on a legislative package that you had last year if I recall that almost made it into the ndaa if I recall but um again I think that we have good robust authorities but the technical assistance I recall uh supported that bill it supported the you know the what you were trying to achieve but ideally and I think you gave us as technical assistance if we could preserve those authorities that our Legacy authorities if you will but if we

could that was the key that we didn't want to in any way lose the authorities that all the way up to the Supreme Court that we had had right right but I I see you nodding um you know if we could codify a definition of insider trading and create reduce some of the risk of overturning of case-made law that might in the long run simplify your task and create confidence in the in the markets great yeah I again we should follow up with staff but our major concern was that we're not and somehow undo some of the really good law that's in place inspired gentleman yields back the chair now recognizes herself for five minutes okay while you were a professor at MIT you

spoke at length about how technology could be used to democratize finance yes in fact in a lecture quoted in a podcast entitled paying it forward with fintech uh with Professor Gary Gensler you stated and I quote what I was drawn to at MIT was the sense that maybe we can do we can democratize capitalism a bit more that we can use technology to make Finance more inclusive and more accessible to many more millions of people in our country and many more hundreds of millions of people around the globe now sir as chair of the SEC you've put forward a predictive data analytics proposal that jeopardizes the Innovation and Technology that's made

investing available to Millions more Americans than ever before I'm I'm confused at which Gary Gensler the American public should believe the academic version who spoke glowingly about the power of technology to help more investors participate in U.S and capital Global Capital markets or the SEC version apparently things all use of any technology by broker dealers and investment advisors is inherently conflicted nice and firms interesting that she's not using crypto but she's definitely talking about crypto all together sure again sir you know could you please briefly explain this change in your views yes please thank you for the question a clever question it's the

same Gary genser it's not my identical twin brother Rob or anything it's me and I believe technology is so transformative I think artificial intelligence machine learning is so transforming this decade and get the out of here I think Robo advisors and brokerage apps whether they're using these new technologies or some of the older predictive data analytics just to stand by the basic concept that the investor is first not the investment advisor is first that's that's all we we agree there and and this proposal fails to acknowledge the already existing and well-functioning SEC regulations such as regulation best interest reg bi and the

fiduciary standard that protects investors I I would I would really urge you to to withdraw um this uh uh this regulation as we already have this in place and during your last appearance in front of this committee I asked you sir if you were planning to rewrite regulation best interest rugby I and you said that it was not currently on your agenda however the commission's proposal on conflicts of interest associated with the use of predictive data analytics effectively rewrites reg bi by holding broker dealers and investment advisors advisors to a higher

standard of conduct and conflict neutralization than regbye were you intentionally with holding your plan to supersede regbye Robert kensler is actually Gary's brother Samus I did in April I think this doesn't change regulation best interest or the fiduciary interpretation oh no this does I did not know this area around using predictive data analytics it's if uh if a function an optimization function it's a little bit of a math thing but if the math is basically putting the investment advisor's interest ahead of the investors if it's making a

recommendation or it's giving a nudge a behavioral nudge to steer somebody somewhere therein lies a conflict it's too broad I mean we don't we don't even know what what technology would be applied here and at the core reg bi has a fiduciary standard the best interest that is already there you are now superseding that and um it's it's it's not just duplicative it it throws out potentially the fiduciary Rule and reg bi so I again would encourage you and I think we have bipartisan support to withdraw this rule um um just as soon as as possible that's

Robert denzler that's not even the staff because this was a question I sent you that we haven't received response how many staff with the division of trading and marketing investment management and the division of Economic and risk analysis we're actively involved former president analytics proposal uh I don't have I don't have a number but I would say that generally speaking do they have advanced degrees in computer science data science or engineering sir a number of them have advanced degrees in economics and computer science but I don't know how many of them do well I've sent you a list of questions I'd love to have those answers my times expired the chair now recognizes the uh gentleman

from Illinois Mr Foster for five minutes uh thank you madam chair um and I want to thank our witness for staying up until 9 30 p.m to accept and analyze the just-in-time delivery of our bipartisan letter with 16 Republicans and 16 dumps on it that french hill and I um prepared I I want to make sure that that you understand what the meaning of that letter is it is not that you should stop working on the market reforms in parallel with uh 605 is that you actually get the 605 done so that you have upgraded reporting of quality of order execution and so on and have that in place so you can have a

look at this Camaro price looks exactly like Gary the quality of order execution who the is so just the the meaning of the letter is to sequence those in that way but not to cease all work on planning and so on of the of the market structure reforms so just um please read that the end of the first paragraph carefully we one of the reasons it was late is we did a certain amount of wordsmithing to get that right so and and I also want to comment a little bit on you you were on it was on your ship when we had the flash crash right you were you you were um what you were running the cftc during the flash crash and you know I remember when we had a hearing maybe four days afterward

um the cftc had the night of the flash crashed 30 people with the entire trading history with that on their laptops figuring out what the heck happened and four days later the SEC which did not have a Consolidated audit trail-like structure in place was still collecting the data to figure out what the heck happened and so I think that is why we should not lose sight of making the Consolidated audit Trail you know a success and really um do it and I think that that's a separable discussion from The Beneficial owner in cyber security issues there um and in particular uh because I don't know who the hell is this is made a statement actually we're going to pause this because it's boring and we're gonna

listen to top emmer who's hyping up his own incoming I identified his own incoming of the conference chairs remarks statements here Michael Cloud's remarks but for me it's a big day in Congress for more reasons than what we've talked about so far today SEC chair Gary Gensler is going to testify before the house Financial Services committee and boy does he have a lot to answer for under Gary gensler's leadership I would say failed leadership the SEC has been an incompetent cop on the beat throughout his career Gensler has been relentlessly loyal to the biggest institutions at the expense of everyday Americans today he's going to face some important questions about that

Gary Gensler has worked to consolidate his own power even though it means crushing opportunities and frankly the financial future of this country this strategy hasn't been successful for him as you note the SEC continues to lose again and again in the courts nice on its Crusade against digital asset in a Innovation so it should be increasingly obvious that the crypto industry is not in history Rife with non-compliance thank you Rogue bureaucrats like Gary Gensler are supposed to be working for the people not reigning over them I for one would like to see the SEC return to its Mission and make sure that they protect opportunities for every American

who wants to participate in the greatest Capital markets in the world did your last set Innovation is an important part of that he is a bureaucrat who answers to Congress and I look forward to having him before our committee today and now I turn it over to our beloved leader the toughest man in Congress Steve scalise thank you Tyler I look forward to your comments soon uh can uh quantify their order quality that's what this rule says sorry but then you have to make sure it's an Apples to Apples comparison they will have an incentive to not quite you know if there's an ambiguity they will resolving in favor of making their

numbers look good you're going to have to have some of your employees looking over that whereas if you just say okay find a competent entity you know like as S3 seems to have a pretty good market share of of doing that already or or finra oh this happened just write one piece of software make it published run that piece of software in the Consolidated audit attorney no he didn't say everyone to understand exactly what numbers are being reported uh the one thing is the Consolidated audit Trail does not capture uh and compare you know uh the orders like you bought something on a Tuesday or you put in I'm sorry you put in order it and you here's the actual quality so it would be bolting more requirements

I think going to the Consolidated Ontario but we can follow up and just talk further I think it actually could gentleman's times expired the chair now recognizes the gentleman from Kentucky Mr Barr for five minutes chairman Gensler have you ever spoken to Senator Menendez about the Security and Exchange commission's director of enforcement gerbera Grewal no on May 20th uh 2021 your public calendar no it's a call with Senator Menendez what was discussed during that call if you can remember well you hired Mr graul as the sec's

Director of enforcement shortly after that May 20th call are you aware of the glowing statement in support that was put out by Senator Menendez praising your hire I thank you for letting me know that but until you told me or until today well I'm deeply uh concerned about this and I'll be following up with your office with additional questions and expect a written response uh Mr chairman I I really liked your colorful uh testimony uh and you're right we are blessed with the largest most sophisticated most Innovative Capital markets in the world but we cannot take this for granted oh my God there's two of them all right Rob what do you think

Rob rat a 20 billion dollar funds and he's not read a single thing on the syllabus I haven't even read a single thing on blockchain oh my god um in the 90s I was a tech and Telecom investor and it's relevant to inform my biases because I saw you know oh you know Google wasn't the first search engine that came public that will be of little practical you wasn't even the top five it was the sixth or seventh if I recall search engine that came through and the first five didn't have a monetization case in Google wound up figuring out the puzzle and I saw all the things in the 90s in the tech track

in the tech what intrigues me about this is and I'm not a minimalist as to blockchain has no economic basis it actually [Music] yeah there's no sound that's fine okay sorry I'll go back here to deter investment in profitable companies um this is not doing that with all respect all it is is about trying to bring some comparability to disclosures being made we're not a climate uh agent I know I've heard you say this we're really not well let's be honest

we know what's going on we know what's going on you're trying to Scarlet Letter fossil energy we're not I know you talk about it but that's a joke everybody knows what you're doing you're trying to redirect capital a way you're trying to discriminate against fossil energy not notwithstanding your your protests most American investors find all of the scope 3 emissions nonsense and immaterial it's immaterial I know institutional investors talk about this but this is about an agenda to discriminate against fossil energy which is profitable that's not protecting investors that's hurting investors it's steering them into less

Diversified lower performing funds let me move on to the perfect storm of regulations has a second phase that's consulted with Vice chair bar about the Basel III endgame and the interplay between what you're doing on Capital markets regulation and what's happening in commercial real estate I'm very concerned about this because Basel III will increase the cost of credit diminished lending capacity and undermine the role that Banks play in lending uh and Financial intermediation in commercial real estate have you talked to the FED about how this interacts with conflicts of interest and securitization rule rule 15 c211 private funds custody Rule and others because I'm really

worried that Basel III in game Patrick McHenry just put this tweet out proposals would lead to a death by a Thousand Cuts for commercial real estate win we're looking at uh maturity I'm your before welcome back Sharon genzer uh last time you were before the committee I voiced my concerns regarding a reckless approach to rulemaking lack of capital formation agenda uh Crusade against the digital asset ecosystem and unresponsiveness to Congress so many things change so many things remain the same those are the same issues on the docket today um this means that in the last five months you've done nothing to remedy the legitimate and often bipartisan concern

expressed by this committee and these committee members that is disgraceful so let's run through them again let me be clear chairman Gensler our patients is wearing thin first the Securities Exchange commission's current approach to rulemaking jeopardizes the Integrity of our financial markets and put puts investors at risk there's a critical need for comprehensive economic analysis of the rules you've proposed in their interaction with one another under your leadership the commission has failed to adequately assess their interplay and cumulative impact that shoddy work for an important agency and does not adhere to the sec's mandatory uh statutory Authority while the secures exchange commissions

engaged in a wide-ranging regulatory agenda you seem to have overlooked the importance of public input resulting in by force and bicameral concerns members of both sides of the aisle have raised valid concerns regarding the method relief swing pricing hard close as well as your Equity Market structure overhaul the security Exchange Commission has taken no action to address these concerns second you're you continue to fail to prioritize Capital formation among your expansive rulemaking uh agenda items there is not a single initiative aimed at improving access to Capital or enhancing Market competitiveness third your efforts to choke off the

digital asset ecosystem which has created real harm for consumers and our markets is cleared all you said the law is clear but your actions have created more confusion and Lasting damage chair Gensler you've also said your goal is consumer protection yet your actions have pushed legitimate digital asset activities outside regulated financial institutions where consumers are best protected on one hand we've seen bipartisan votes in Congress in this committee to provide clear rules of the road and real consumer protection and on the other we've seen your ad hoc regulatory regulation by enforcement approach to digital assets on a losing

streak in the courts you refuse to be transparent with Congress regarding your interactions with FTX and sandbank than freed that's the investigation we started last Congress finally your lack of responsiveness to this committee's legitimate oversight continues to be unacceptable now I want to finish here in February the committee made multiple requests for documents to the Securities Exchange Commission this is normal congressional oversight yet seven months later the committee has not received a single non-public document that was not part of a foia production as I said our patience is wearing thin the SEC is not above the law nor is it unique other Financial Regulators have routinely complied with congressional

oversight so let me be clear I do not want to be the first chairman of this committee to issue a subpoena to the secures Exchange Commission and you should not want to be the first SEC chair to receive a congressional subpoena either we find a path forward where the SEC recognizes Congress as a co-equal branch of government and is responsive to our oversight duties or my option is to issue a subpoena it's time for you to consider the lasting consequences of your action your actions and what that means to the Securities Exchange commission's reputation long term while your time in this role may be

temporary the repercussions for your actions may be permanent for the agency I yield back yeah like the most exciting part of this whole this whole entire thing I've been watching this in the sidelines and she's been talking about by changing the inputs for different mixes of assets can you address the concerns or take the rest of my time to talk about this proposal so we can understand it better well this is uh one thing I'd say this hearing comes at a timely moment because the comment period is open until October 10th on this particular rule but this rule really is just has a basic concept that if you're engaging with investors um that those investors interests come

before that of the investment advisor or broker dealer if you're using predictive data analytics to determine how to nudge them or guide them you should be not putting your interest look I I do I love I in my downtime I like to watch romantic comedies and watch on streaming apps if the streaming app figures out that I'm like a rom-com guy which I am and they're doing it because they make more money because I watch the streaming app more there you go all right but in finance if you're doing it and you're nudging somebody to trade more and churn up their hard-earned assets or

to nudging them to margin or options trading or higher fees on a robo advisor and it's not in their interest but it's in the investment advisor's interest therein lies a conflict that's what we're trying to address thank you gentlelady yields back and the chair now recognizes the gentleman from Texas Mr Williams for five minutes when's Tom emmer the sec's uh I don't even see climate rule proposal oh there he is he's on the right it's right here that's Tom it will now record for our companies to report on emissions data and climate risk management strategies this proposes a major concern for his business owners back in my district who are worried I'm

a small business owner also about the sec's recent push to implement social and political regulatory requirements they're not even relevant to the company so the sec's proposed climate requirements will cost companies millions of dollars to ensure they are properly compliant with these burdensome rules this will force business owners to hire more lawyers and compliance officers rather than investing back in their employees and operations which would help their businesses grow and bring more in revenue and I've seen that happen in my business so businesses are already struggling to operate within tight margins and an increase in compliance costs could be their Tipping Point and on top of that the scope 3 emissions disclosure will direct companies to speculate on the emissions output for their suppliers and products which require substantial information to

order to get a proper estimate so this could lead to smaller businesses being left out due to how difficult it is for them to obtain this complex information and the SEC Crusade is extremely out of touch and exceeds their intended missions and statutory Authority so the FCC needs to stop their abuse of the rule making process before they cause any further damage to the industry so Mr chairman what is the average amount of time and resources every day come companies will need to ensure they are properly complying with the excessive climate risk disclosures and how can mandating companies to file on indirect emissions relating to their company provide consistent information for investors um again and Mr boar sitting behind you

asked similar question let me just put it in context if I may investors today are making investment decisions based on climate risk disclosures we're trying to bring some comparability you both you and other members have raised this question about greenhouse gas emissions so-called scope tray and for the listening public this is of the value chain it's not about the company itself it's about their suppliers or their customers and we got a lot of comment in the public file about this not just for members of Congress but from small medium-sized Enterprises in your district and other districts from Farmers and ranchers and and the like we're taking a very close look at this our remit our legal

Authority is about public companies it's about the public companies and over half of the top thousand already making disclosures around their emissions but we understood even in the proposal that scope so-called scope 3 is less developed is less used and we got a lot of feedback and we're taking that under consideration and looking at it very closely because when you make small businesses smaller because of regulations yeah and and are you sir and I've said this in his Senate hearing two weeks ago as well every minute is just about those public companies it's not the private companies in your District my dad I have a very

small company too that's not the remit of the SEC all right the sec's rulemaking process is unprecedented proposing over 50 rulemaking since the spring of 2021. the SEC has failed to understand the impact of these rules and how they will each affect the industry as well as the aggregate amount or impact it is crucial that the SEC conduct cost benefit analysis is solicit industry feedback that these proposals and what it will cost for the participants that the commission oversees I was proud to sign on to a letter led by Karen McHenry to you highlighting our concerns with rule making agenda in substantial volume it's vital that the SEC understands the Regulatory and financial burdens that they are unjustly placing on Market participants so just like we talked

about so in closing chair as the SEC engaged in any roundtables field hearings or investor testing to really to really solicit a feedback before rulemaking again it was it was good to read your letter about 8 PM last night it was good letter and but in terms of your question um we solicit feedback in the formal way through the comment period we solicit feedback and have hundreds of meetings sometimes on any one rule with Market participants and then we we detail them in the files and we benefit yeah Brian uh Brian in the YouTube says this has been two minutes at a disappointment yeah I would say yeah I would agree but I think we're about to get Tom emmer from

Camp Vargas for five minutes uh thank you madam chair and I want to thank the the chair and uh comment our way close to the last last time too oh and that's Warren Davidson as well so we got we got two people to look forward to Juan Davidson and the red dress was the chairman of the agriculture committee when I first came to Congress 11 years ago he was eminently fair and a good person to work with and we have an 1800 pound Bull on our property in our Ranch and I got to tell you don't mess with those animals those are big animals they can do a lot of damage so it's great to see him here today like I said uh I think everyone in this bullsey has great respect thank you Mr Vargas but it's great to see you here um you you were asked to somewhat of a

catch-22 question earlier and that was you were supposed to produce some documents within those documents was a letter that was you know given to you by this committee and then in that situation it's either you disclose that that letter is in there and they say hi you disclosed a letter that we sent you you know how typical or if you didn't you'd say boy he didn't even disclose the letter that was send them so you were sort of caught in a catch-22 no matter which way you answered I'm glad you disclosed the letter but then you were asked I think a very ugly and unfortunate question about a recent Senator and your interactions with him because he's been indicted I think there was an insinuation there that maybe that something you did was in inappropriate or improper um could you comment on that please

well I can't comment about a criminal prosecution no not about the criminal prosecution but the insinuation that you possibly did something that was inappropriate in your conversation with him on the phone um well I mean uh I didn't discuss anything with uh the senator uh in May of 2021 except for his concerns about Federal Securities laws and disclosure if I recall but there might have been other topics that he talked about around disclosure around diversity by Investment Advisors yeah I just wanted to give you an opportunity to say that because again I think that was a bit of an unfair question and so

in a in a role like mine I engage with senators and members of the House of Representatives and we benefit from those engagements yeah no I agree but again thank you for being here and thank you for answering that question now I am I take a very different view of climate related risks of course on this side and and I think it is the one of the biggest issues that we face as a world and certainly as a country and the reasonable standard again was created by Thurgood Marshall that is the reasonable person you know the materiality what would a reasonable person want to know and it seems to me with all the headlines that we have and all the information that we have about climate related risk of I could go through a whole bunch of headlines here which I won't but it seems to be this is

a gigantic issue and people want to know and in fact people do want to know and companies have been disclosing this for a while so I think you're on the right track um but you're not a climate change organization are you that's you're not the cop on the beat for that no no we're Securities regulator and disclosure based regulator and that's what we're trying to do here is just as I've often said investors are making decisions today about public companies based on their climate risk disclosures and it it's trying to ensure that it's truthful it's accurate it's decision useful yeah and in fact this is what people

want to know today isn't I mean any investor today that reads the newspaper especially if they're invested in insurance or company like that they say you know well why isn't my company you know insuring in California or along the you know the areas in Florida they get swamped all the time with these huge hurricanes well it's because of climate change and now interestingly we used to have uh climate deniers to say that no we have the scientists that says that climate change isn't real now basically all the the climate scientists all the scientists agree now you got some Knuckleheads that are column writers that say you know this is true but it's not a scientist you're a scientists don't dispute it anymore and it's real and it's a big deal and I'm glad you guys are looking into it because investors want to know about this

especially long-term investors I would say from the sec's perspective it's about whether investors are making investment decisions and find it material as you mentioned the Supreme Court law of the land that a substantial likelihood that a reasonable investor finds significant in the total mix of information and that that's what we we you know know to be the case today if 80 plus percent of the top thousand companies are making some climate risk disclosures they're not all making scope three we had Lively discussions about that but uh in terms of climate risk a lot of companies are making disclosures already well thank you again for being here my time is up so I my last seven seconds I

thank the chair again thank you Ben Mr chair all right John from Minnesota the whip yes here we go here we go all right thank you Mr chair cancel it I have a series of uh questions that require yes or no answer and in the interest of my limited time I'd appreciate it if you would comply with that Mr Gensler is it fair to say generally that large institutions in any given industry benefit more from regulatory uncertainty than everyday Market participants or smaller institutions who don't have the scale or the capital to fund expensive compliance teams large institutions could benefit from uncertainty reclaiming my time the answer is yes sir yes it is Mr Gensler

you had an 18-year career at Goldman Sachs where you were partner and co-head of Finance correct yes sir thank you and is it correct to say that you made most of your personal wealth directly through your employment at this bank bank Goldman Sachs I've done well since then too sir I'll take that as a yes as well you describe the SEC under your leadership as the cop on the beat watching out for our constituents constituents correct I think that's a mandate that Congress and I think you've said that reclaiming my time the answer is yes sir if you could just comply with what I've asked I'd appreciate it but given your 18-year career one of the biggest banks in the

world in the personal financial Fortune you a mass there do you think it's possible for you to serve as an impartial regulator and not favor large Financial intermediaries absolutely sir well Mr Gensler do you believe the vast majority of digital assets meet the investment contract test and are therefore Securities operating illegally outside of the U.S regulatory umbrella as I've said many of these assets are basically the public is anticipating sir is that a yes on the efforts of others is the answer then yes again without prejudging anyone I do think that the significant I'll take it and to be clear sir this perspective has nothing to do with the concern you noted

in a speech last year where you said quote over the past year several Bank Executives have shared their concerns with me about the sheer number of depositors who have moved money from their bank accounts into crypto related exchanges and wallets end quote right the concern that those Bank Executives raised was that there's again I reclaimed sometimes we're getting hurt I've asked you to answer the questions as short as I can so I can use the time I have and it's clear that you would like to avoid answering the questions in my opinion and Obama appointed judge in the southern district of New York a bank friendly jurisdiction where you bring most of your cases recently found that decentralized Financial technology quote not only removes the so-called middlemen

from these transactions but it also allows users to interact through a variety of methods in an easy and efficient Court also said Underwriters like the ones at Banks where you work sir are quote precisely precisely the types of individual roles that decentralizes exchanges were designed to eliminate end quote Mr Gensler can you assure this committee that your style of Regulation by harassment towards digital asset Innovation is the benefit of every American and not driven by your desires to protect industry incumbents this is a field that's Rife with fraud and manipulation and I'm I'm looking out for the American investors who've been hurt by the crypto I'll reclaim my time Mr Gensler despite your years of rhetoric

like today I'm convinced you are not an impartial regulator instead it's clear that you are working to consolidate your own power even though it means crushing opportunities for everyday Americans and frankly the financial future of this country even the federal courts are highlighting the damage you sir are doing to our constituents and they're telling you that you don't have the legal authority to accomplish your goal goal of squashing competition in the financial markets Congress has been telling you that too now Mr Gensler I believe our great financial system is the definition of freedom in this country and Congressional policies must provide room for the traditional Financial system to evolve alongside the disruptive digital asset ecosystem that

said it cannot be understated that a common theme throughout your career sir is your Relentless loyalty to the largest financial institutions at the clear expense of innovation competition and everyday Americans I yield back I suspect some large financial institutions there's no question now sir I've yield back my time children from New Jersey Mr godheimer is recognized for five minutes thank you Mr chairman all right it's good to see you Shawna Tovar may this year bring you health and happiness you too sir um if I can begin in your testimony you said that it generally takes 12 to 24 months for the SEC to proceed from

issuing a new rule proposal to adopting as a final rule that may seem like a long time uh but I assure you as it's not a very long time for some of the smaller stakeholders that I speak to but support certificate about that and when running their business and of course you know I'm getting concerned and I wanted to get your your thoughts on this as well are you worried at all that all these rules are putting smaller and medium-sized businesses at a disadvantage and inadvertently benefiting the larger ones that can better handle the Deluge of all the proposals so and is there an unintended consequence of actually limiting the flow of capital to smaller and medium-sized businesses and in favoring the larger ones okay I and we've talked about this in your office as well I

think that we benefit hearing from those small businesses we often then look to a job okay so the critique Brian's critique is like guys um Tom emmer just made statements and didn't make Gary gants or any Gary and answer anything that was so lame this is kind of what this is like this is the arena of public part of my opinion and public interest and public influence nothing actually gets done in these things this is just drama this is just the sitcom of Congress um and it's it's a matter of just like watching for the onlookers right it's like one of the it's like fighting in Twitter like you don't actually try and convince your opponent you just produce a scene for people to watch and Judge

Tom emmer what he just did was uh tried to uh frame Gary Gensler as being an interest of the big Banks he tried to do the alignment of uh Gary is doing his Shenanigans in the SEC because it aligns with a large Financial Capital uh institutions the whole like lack of clarity that uh Congressman emmer charged Gary Gensler with producing he said that implicitly benefits large-scale institutions and is uh an up makes an uphill battle for smaller smaller businesses because one small like becoming compliant or navigating regular regulatory uncertainty is always going to benefit the large-scale

institutions so that's what Tom emmer was doing he was trying to position Gary Gensler as just a an agent of chaos because chaos inherently benefits the incumbents the large-scale financial institutions the banks what didn't it never really mattered what Gary gensler's answers was which is why Tom emmer wasn't interested in hearing them or didn't really care about anything beyond like a yes or no he only really wanted to ask the question and put the place the framing of Gary Gensler as being a corrupt regulator that just all of his actions naturally benefit um the incumbent institutions so that's my analysis on it that's that's kind of why we're doing this directing the SEC and cfdc to do a joint rulemaking creating a process for the list

the clear rules of the road for this are critical to protect consumers and promote Innovation here in the United States you've claimed that you have all the authority you need I know before before us uh but a rulemaking process hasn't started yet can you explain to us why please well because there's already laws and rules in the books there's roles and laws on the book that apply to crypto security tokens like they apply to others and um there's nothing incompatible because you're storing something of value on a blockchain ledger we talked earlier about being technology neutral whether you're storing that at dtcc the public Clearing House or you're storing it on

on a an accounting Ledger called blockchain it's still a transfer of value and the public is maybe depending on the token anticipating a profit based on the efforts of others as it relates to the crypto so-called crypto exchanges they're doing what we wouldn't even allow anywhere else they're commingling co-bundling trading against the public and and sometimes front running the public on their platforms so memorandum's understanding have long been used and adopted a number of contexts in in June 2022 you told the financial times you were working on mou with the cftc to avoid regulatory gaps for crypto can you give us an update on the status of the mou please um uh I I was I was hopeful that we

would do something there but what we do is on on a uh case-by-case basis and issue by issue basis work with this commodity Futures Trading commission with regard to this crypto field they have important authorities they exit execute against those authorities we do against our authorities really both with the same goal of protecting the public thank you may have a sweet new year thank you General time has expired someone from Michigan Mr High Zinga is recognized for five minutes thank you Mr chairman out of order here because I was uh in a bipartisan meeting with the speaker uh talking about a debt commission and I hope that that is going to be part of the path forward that we are dealing

with with Government funding and our long-term debt but I I want to move quickly but I want to follow up on Summit chairman mchenry's line of questions and remarks and um uh you know I'm not going to belabor the whole uh situation where we've had public documents that have you've given us on our request that's been out there for over seven months no real information except for that which was foided by the public our request simply seeks to obtain information to better understand the black box of the sec's activities on climate related measures and its rule-making Authority and uh you you had said in your own remarks uh quote based on authorities granted by Congress well I dispute the the the the

assertion that you've been granted that Authority in this particular case and we are a co-equal branch of government and this is routine congressional oversight so let's talk a little bit about the commission vote for the climate request uh you know when chair McHenry asked have you scheduled a vote for the commission I did not hear an answer on that or when will a vote be scheduled I did not hear an answer on that there's 13 000 emails and documents we've been told uh that are ready to be produced but are being held up by a uh provision with an Exchange Commission 24c exchange act sorry I should say it requires a vote of the SEC Commissioners as your assertion or the commission's assertion uh lawyers differ on that and

it's my understanding that you claim that you don't have the votes necessary on the commission but Mr Gensler I want to ask you this are you personally ready to vote Yes to produce these documents to this committee we continue to work with your staff and continue to work we've have voted as a commission on the I think they're called transcribed interviews of now this transcribed interviews are very different than the documents that we have requested I'm asking you not about the commission are you voting yes and will you vote Yes on giving that information this is a really good website by the way coinbase.com

with my fellow Commissioners and we're I want to know what you are going to do not speaking for anybody else you again yes or no sir again we're working through this at the commission level come on and all right this is ridiculous okay so let's assume your answer now is no so um what have you done to try to produce a vote of any sort are you talking to your fellow Commissioners are you whipping them are you asking them to vote for that okay we have ongoing discussions we of course have to have it one on one because of the government and sunshine act all right um well uh frankly we have we've been pretty cloudy over here on the Congressional side I mean you're fulfilling foia requests but you will

not give that same information to Congress that's a problem so uh under 24c the delegated authority by the commission allows you to do those foia requests without a vote of the commission um seems to me maybe we need to help you out uh does that seem reasonable uh because here's our problem what happens if you never get the votes what's your plan ignore Congress we're going to continue to working with you what is your plan because we've got a plan the chairman outlined the plan and it begins with the p and ends in Oxy and it's not a real fun word that any of us want to fulfill again we're continuing to work and trying to get you documents on a regular

basis but you are not you are giving us publicly available documents that is not the role of oversight so okay so are you open to legislation that would clarify that the SEC is not required to have a full commission vote comply with the request for Congress or uh in Congress or this committee again I'd have to have staff look at the legislation we'd give technical assistance as we give it on other uh Provisions yeah I'm pretty I'm pretty sure we don't need your technical assistance because so far technical assistance has gotten us nothing so um well I enthusiastically support the chairs uh discussion of using compulsory process and um I I it's it's shameful that you're

hiding behind this 24c process and that the commission is uh and we are going to have to remedy that apparently based on your lack of cooperation one last quick question did you ever receive a memorandum or agency document in writing assessing the Supreme Court's decision on West Virginia versus EPA on the sec's rulemaking authority I know there that we've had discussions I don't remember any memo I've read I've read I'm going to ask you to follow up my time is expired we're going to have you follow up in writing with that Mr chairman I yield back thank you John from Illinois Mr Cason is recognized for five minutes thank you Mr chairman uh nice to see you again secretary

um um I want to talk about your climate disclosure three left including this guy two two after this guy about that um I'm not going to be able to get into specifics but I do just want to expand a little bit you had mentioned to Mr Cleaver that investors were asking for more clarity because of all the voluntary disclosures that are out there and and I think but I don't want to be presumptuous that that there's some history there that I'm hoping you can share because I think in 2010 SEC entered drafted sort of interpretive guidance regarding more voluntary disclosures can you clarify what happened between 2010 and then 12 years later in March of 22 when you when the SEC decided that it was necessary to provide some more

disclosure and and specifically if you can comment like what was industry asking you for so so a lot changed in the 12 years particularly investors got more and more interested making investment decisions and here in the U.S uh companies responded their investor relations and their CFOs and corporate Executives responded to to meet those requests by investors and they started following something that was called the tcfd framework you're probably familiar with this International framework um which interestingly was 32 people that were mostly from industry they weren't government sector it came

to this framework and so by 2021 80 plus percent of the top thousand companies were making some climate risk disclosures that's what really changed investor demand for investor decision making and that's where the SEC has a role well I appreciate that that certainly is consistent with my experience in the private sector and I think it said that we need to keep reminding folks that this was a really industry-led initiative in the first instance I want to move to the state level because um a little while ago you had mentioned to the Wall Street Journal that if California finalized some rules I think your quote was you said this may change

some of the economic Baseline of the commission as it relates to the pending order and of course last month the California legislature did pass a package of climate disclosure bills which I understand only relates to companies Beyond a certain size that do business in California but given your earlier comments can you speak to howeth at all that is fact bring into how you're thinking about the disclosure and whether whether you're still on Pace for an October release as you'd earlier indicated so in terms of we look at the economics very seriously and that law that was passed in California is not yet signed but if it were signed into law

as I understand it that would require companies of a certain size to report on their climate risk I think over a half a billion dollars in revenues and those over a billion dollars in revenues uh to report greenhouse gas emissions and for the listening public and on a scope one scope two and scope three basis all three of these Scopes but for the listening public it's estimated that somewhere between 14 and 1500 public companies would might need to report under that law we have not confirmed that number that's just a estimate that's in the press and so that may change the Baseline if those companies were reporting to California then it would be in essence

less costly than because they've already been producing those that information it's also important that the investing public again because they're making decisions based on those public reports that they're accurate that they're truthful uh because the investing public benefits making sure that uh the accuracy of the disclosures and you had indicated that you were targeting an October release date for the final rule are you still on that pace can you speak that and does and does California's actions in any way change that let me just put this a little in context twice a year working with the office and management budget we put out what's called a unified agenda and we put dates

on all of the proposals really in two different dates of the year so I wouldn't with all respect put too much emphasis on that it's really with sixteen thousand comments we've gone through it's what's 15 16 months since we made the proposal it tends to take again 12 to 24 months but we're not doing this against a clock the staff's ready when the commission's ready uh well thank you got more questions but I'm out of time so yield back thank you again for being here somebody yields back we'll now go to the gentleman from Georgia Mr Loudermilk for five minutes well thank you Mr chairman uh chairman genser thank you for being here Mr chairman um

to submit for the record at Wall Street Journal article by um uh Warren Stevens and Paul Reilly entitled the SEC wants to spy on your portfolio without objection thank you Mr chairman um chairman ginser is the op-ed points out prior to the Consolidated audit Trail the government needed legal cause to force financial institutions to report their customers personally identifiable information in your opening statement you refer to the SEC as cop on the beat but law enforcement has to comply with due process and I'm concerned no I'm convinced that the Consolidated audit

Trail has the potential to become another warrantless surveillance program and as we have all experienced if you extend the government power that power will inevitably be abused as we saw with the fisa courts especially if that power does not have direct oversight and controlled by Congress I like what I'm hearing my first question have you read this article The Wall Street Journal just came out the other day about the Consolidated audit Trail I I'm I may have a Felix in the last two days I saw the headlines all right so it goes on to explain the problems that I've laid out several times when you've

been here before about the collecting of personal identifiable information and quite frankly a lot of information about individuals and their their buying of stocks in fact uh when you were here last time I believed that you express the the purpose of this is so you could peruse to look for any potential illegal activity that's a blatant violation of the fourth amendment that is what this article is spelling out and and it's gotten the attention of a lot of people even outside the financial services Arena so I would encourage you to please read it because I think it explains the concerns that many of us have about this program um also Mr chairman I'd like to submit

for the record a letter that was sent by me and my colleagues to Mr Gensler um regarding the Consulting to act audit Trail without objection thank you Mr chair and Mr Gensler regarding this letter um in the letter I ask about the 3 000 individuals estimated number of people are institutions that would have access to the Consolidated audit Trail or the customer account information system three thousand would have access to it who are these individuals and how will they be vetted uh for access to such sensitive information

one I do look for it I will read the article that you mentioned too in terms of individuals it's only allowed to be used this Consolidated on trail at the SEC and the self-regulatory organizations at the SEC it's our division of enforcement our economic risk analysis of folks in our trading and marketing how are they going to be how are all these I mean 3 000 individuals getting access to personally identifiable information and details about stock transactions by even just a factory worker who has a Robin Hood account what's the vetting process on this and how are we going to be ensured that they do not use this in violation of of

personal rights I just want to say I'm not familiar with that number but in terms of at the SEC these are people that are dedicated public servants that are full-time at the agency either in our enforcement our economic risk our trading and markets the market surveillance well if you respond to the letter that may be helpful and I'd like to move on because we are getting short on time this really just a yes or no question will the SEC use data collected via the Consolidated audit Trail and the customer account information system to bring enforcement actions we have already we will anticipate in the future um so let me make sure I've got this right

well let me ask you this how has it been funded the Consolidated audit Trail is this being appropriated by Congress it's it by an industry uh funding okay so Private Industry is funding this which the the cost of this has gone up exponentially since it started but this just to close out I want to make sure I understand you're saying that the Consolidated audit Trail is a comprehensive database of transactions used for federal enforcement purposes but it is not subject to congressional oversight or through Appropriations I mean this is lining up to be another surveillance program without any control without any constraint without even the power of the purse and I yield back it's

almost time is expired we'll now go to the gentleman from New York Torres oh Richard Torres thank you Mr he's been on Bank list against their morning um I worry that the term investment contract has become so infinitely malleable and manipulable that it means whatever you unilaterally thinks it ought to me right I worry that when it comes to crypto you're looking for an investment contract has no limiting principle and therefore could invite arbitrary and capricious enforcement action so I want to take a few minutes to explore the concept of investment contract in Greater depth and I want to start with an obvious definitional question we know that an investment contract requires an investment does an investment contract require a contract

um you know something about this definition I will quote Thurgood Marshall Congress painted with a broad brush and when Marshall said that he was writing the law of the land so we follow this how we test and how not just Marshall but other courts interpreted it and it has a four-part for component I I again I did not go to MIT but in the Bronx if I ask whether an investment contract includes a contract the answer is typically yes or no so actually sir under the Supreme Court law of the land they do not write that in they say it's a investment of money uh and a common Enterprise and you're anticipating uh uh profits based on the

efforts of others so I I'm I took an oath to to follow the law of the land and that's the Supreme Court law of the land yeah it's just a friend and how we the Supreme Court refers to an investment contract as a contract scheme or transaction that was a terminology that I saw in the case and as far as I can tell there's nothing in the Supreme Court's jurisprudence that suggests that a scheme or transaction means the absence of a contract and so by way of illustration you know consider the landmark case of SEC versus Howie in the Howie case it was not a single contract but there were two contracts a land sales contract with the Howie company and a service contract with Howie in the hills and the court found that the combination of those two

contracts the total scheme the total transaction the total economic reality was constitutive of an investment contract and so a scheme or transaction does not mean the absence of any contract at all it means as it did in how we a multiplicity of contracts uh in August there were six law professors from law schools as preeminent as Yale who came to the following conclusion quote no decision of the Supreme Court has ever found that a scheme that does not involve a contract could qualify as an investment contract and so do you disagree with that statement and if so could you please cite a decision of the Supreme Court that has found an investment contract in the absence of an actual

contract the SEC has been in front of multiple courts and investment contract has been uh what's the name of the case Mr Gensler the Supreme Court case that was found actually an investment contract in the absence of an actual contract you have the can you cite a case they SEC over the decades whether it's can you cite a case is there someone in the chat who knows what Richie Torres is up to what's he trying to get public is investing based upon the efforts of others I I find it telling that you cannot cite a single case that's a security not a single how about a second circuit case can you cite a single second circuit case I have found an investment contract

in the absence I understand where you're trying to go and I'm going to leave that to the very fine Attorneys at the SEC in front of Courts but I'm saying the core principle this is this is let me finish let me finish this is the this is a question to which you should know the answer because the definition of an investment contract is the central issue that's what determines the extent of your Authority that's what determines the applicability of federal Securities Law to crypto transactions and your inability to answer that question is baffling to me I'm answering it consistent with what the Supreme Court has said which is a four-part and yet you cannot cite a single case to support your there's no contractor without a

contract so crypto tokens aren't investment suppose I would have purchased a Pokemon card would doing so constitute a security transaction you could purchase a Pokemon card it's I I don't know what the context is but if you're just purchasing a Pokemon card if I purchase a Pokemon card is that a security transfer or that's not as secure okay if I were to purchase a tokenized Pokemon card on a digital exchange via a blockchain is that a security transaction I'd have to know more okay so so for you the process of tokenization is what transforms a non-security transaction into a security

transaction look if if the investor I thought you were technology neutral if the investing public is anticipating profits based upon the efforts of others and they're exchanging funds that's the course I see my time has expired so love you Richie it's almost time has expired but I'll go to the Ohio Mr Davidson for five minutes yeah Warren Davidson there we go chairman Gensler recently a federal court called your rejection of a Bitcoin ETF quote arbitrary and capricious in a subsequent interview you dismissed the judge's opinion asked a follow-up question uh if anything a judge says would change your mind you responded quote well no not really

it seems that you don't really recognize the authority of the judicial branch you seem to have a love for the Howie test selectively applied as illustrated by Mr Torres but you know in light of those reactions you know what should people make about the Bitcoin ETF how will the SEC revise its approach we have great respect for the courts I personally have great respect for the courts we're considering that it's still an active consideration at the commission so you haven't made up your mind I got to tell you what the case yeah I got to tell you that that many Market participants have reached out and and are concerned that you will arbitrarily perhaps also capriciously pull recent filings ahead of others

who've been working with the SEC for years to get an approval for a Bitcoin spot ETF um will this resemble some sort of free pass for one favored company While others remain locked out and I ask that because it seems that's happened before at the SEC um sir I'm not sure if I'm following I mean we're still considering that court case and and the application as you say to Bitcoin exchange traded products are you going to preserve people's place in line or are you going to pull ahead uh a favored transaction or another on the consideration of a Bitcoin spot ETF are you going to observe the place in the queue because timing matters people have worked on this for years and then you

get a recent filing by somebody big in the market and it seems like oh yeah let me take your calls how can I help meanwhile you've given the stiff arm as I've said Hotel California style regulations where you can check in with the SEC but you can never leave never leave with Clarity uh you know and how about the legislative branch do you recognize the authority of Congress or the laws that we pass yes we comply with the loss that Congress passes every day well I I've heard you say that about the the courts and now Congress which is encouraging but I am inclined to judge your Deeds more than your words and uh you know pick up where one of my colleagues Mr heisinga left off with the Supreme Court decision in West Virginia versus the EPA

or you're familiar with that case uh yes sir I'm familiar it's an important case glad to hear you say that and it would be binding correct it's the law of the land sir that's right and it it introduces the major questions Doctrine and you told Mr Barr that you received tons of feedback on your proposed ESG disclosure rules uh feedback that should make clear that the proposal for ESG disclosure is a major question and it should make clear that you don't have the legal authority to do that so I'd ask you to knock it off cease and desist and work with this body to pass a law if you want to regulate something you know frankly your time as chairman has highlighted two problems a Gary Gensler problem and a structural

flaw in the SEC and as I told you in April I've proposed a solution called the SEC stabilization act uh you're you're making the case for this bill easier every day you're acting as the chairman uh by doing rulemaking after rulemaking without any regard to the impact of these rules or maybe that's the feature for you I don't know but it's having a massive impact on our markets I mean we have markets that truly are the Envy of the world and why would you disrupt them um you know with with processes that are driving Capital out of our markets not because to avoid our laws but to find some place where they can get clarity where they can work with a regulator and

get a decision in a path forward so instead of selectively applied you you are short you're not providing Clarity with a rule that's evenly applied you're intentionally short in common periods to limit feedback and the courts have even called this arbitrary and capricious you're pushing a woke political and social agenda and I think abusing your role in the authority of the SEC as cover so uh you know I think fundamentally uh the SEC stabilization act would remove the role of chairman uh it would preserve uh the current Commissioners but it would add a a sixth commissioner so there would be

uh no more than three for me oh this is his fire Gary denzer and so that works it would make the SEC do what you're avoiding frankly you're front running Congress you're front running the courts you're front running even the own Administration and no one has held you to account for that I mean I wish the bite Administration would say You're Fired uh but there won't the list of folks they need to do that for is long Congress hopefully will with the SEC stabilization act I yield gentleman's times expirable now recognize the children from Nevada Mr horse for for five minutes thank you chairman and to the ranking member for the hearing to chair Gensler for being here uh while investor protection

remains Paramount for my colleagues and myself it should not be lost on anyone here that the last risk are investing public is exposed to at this moment is the risk I think we might be out of all crypto stands we hear time and again in this committee that our Capital markets are the deepest and most efficient in the world and yet a large part of why they were able to reach their presently enjoyed imminent status is because investors around the globe have confidence that the SEC has the power necessary to maintain fair and orderly well this is not about crypto understanding that that is pretty much everyone that has anything to say about crypto I think that is a wrap uh thank

you to the over almost 700 people that showed up uh we're gonna clip some of this stuff and put it out on the Twitter um that was great so to recap um I'll continue working who are the big ones Patrick McHenry who is managing this whole thing uh he had his opening statements which were kind of a continuation of his last statements the last time we saw Gary Gensler Hearing in May followed by Maxine Waters who just made it super political hey anything that the red people on the left are doing I want the opposite and it's just full support of Gary Gensler we saw Brad Sherman actually interestingly Democrats who's previously supported the SEC kind of grilled the SEC on non-encryptive

related things that was kind of interesting to see then we saw a hour of like people talking about climate change and capital markets which are so disconnected so we had to just Grill through that and then we saw Palm emmer Warren Davidson and Richie Torres finally asked some fantastic very Punchy very poignant questions I can't believe Richie Torres just brought up the conversation of tokenized Pokemon cards I really hope that he got that from Ryan because that's definitely Ryan's bit that he loves um and that was really the highlight of this whole entire thing so with that I have some work I gotta get to some other podcasts so thank you everyone to the 700 people that showed up to to watch us um watch Congress Gil Gary Gensler uh

next time we see Gary Gensler here at another hearing you know where to be uh come back here so that's a wrap we're gonna uh shut this down and thanks everyone for showing up