(Bloomberg) --The fake news, supposedly from the SEC, arrived at precisely 4:11 pm. The real news, from Gary Gensler, came 15 minutes later.
The official X account of the Securities and Exchange Commission somehow had been hacked, the SEC chair tweeted flatly from his personal account. An earlier post on @SECGov, claiming the commission had approved several Bitcoin investment products, was false — possibly a ploy to manipulate the cryptocurrency.
"MY DUDE HOW ARE YOU GOING TO PROTECT CRYPTO INVESTORS WHEN YOU CAN'T EVEN PROTECT YOUR TWITTER ACCOUNT," came one reply to @garygensler.
It wasn't how Gensler, a longtime crypto-skeptic, wanted this one to go. But then, cryptocurrencies and cybersecurity are only two of the sharp objects he's juggling nowadays.
When Gensler arrived at the SEC in 2021, he took on just about everything. His message: Let the sunshine in. Rules for stock-market trading, Treasury-security clearing, executive-pay disclosures, private equity, crypto, short-selling, climate-change risks, even AI: nothing seemed off limits.
That was then. Nearly three years later, Wall Street's counterattack, in the form of lawsuits challenging the commission and its powers, is striking at the very foundations of the SEC.
To Big Finance, the verdict is clear: Gary Gensler overreached. Now, the mighty Securities and Exchange Commission, his critics say, not unkindly, will pay a price for his ambition.
It doesn't help that other federal agencies have sometimes felt slighted by Gensler's muscular SEC. Or that many Republicans have grown weary of him. Even recently departed commission staff wonder whether rules that have been months or even years in the making will end up getting tossed out by the courts, leaving the commission weaker than Gensler found it.
The SEC said in a statement that Gensler's agenda is to make U.S. capital markets more efficient, competitive, resilient and boost their integrity. The commission added that it maintains "strong relationships with our regulatory partners across the government," and benefitted from working with several on newly adopted rules for clearing Treasuries. Regulations passed during Gensler's tenure are already "benefitting investors and issuers alike," it said.
The Jan. 9 hack and the chair's please-disregard-this tweet—followed, the very next day, by official word that the SEC would, in fact, okay Bitcoin exchange-traded funds — only stoked the fire. (The SEC has been pushing public corporations to improve their own cybersecurity.)
"I do think the SEC chair, Gary Gensler, is a political liability in the United States," Brad Garlinghouse, head of crypto company Ripple, told CNBC on Jan. 16. "And I think he's not acting in the interests of the citizenry, he's not acting in the interests of the long-term growth of the economy, and I don't understand it." (Ripple and the SEC have been fighting about crypto products since late 2020, before Gensler's tenure.)
Garlinghouse's rebuke highlights the battle Gensler's waged as head of an agency that views the cypto industry as flagrantly noncompliant with its rules. "Crypto firms should do their work within the bounds of the law, or they shouldn't do it at all," the agency said in its statement.
The collapse of crypto giant FTX in late 2022 bolstered Gensler's case that the digital-asset industry needs more guardrails. The attacks on the chair's agenda were always expected, said Andrew Park, senior policy analyst at Americans for Financial Reform, a consumer advocacy group. "In many cases you have a lot of long-running loopholes that are being addressed," he said. "Many have been very profitable."
Sitting in his sunlit Washington office, the walls adorned with black-and-white photos and family art, Gensler, who at 66 still has a marathoner's build, waves off critics and questions about the future. He says what he so often has since becoming the face of Wall Street regulation in the Biden era: Protecting investors is good for the country.
"Ultimately, we are here for the investors and the issuers and trying to drive greater competition and efficiency in that market in the middle," Gensler says.
Nearly everyone who follows Gensler says he wants to go down as the most consequential SEC chair since Joseph Kennedy. Which is saying something, seeing as Joe Kennedy, father of JFK, was the very first chair of the SEC, the one brought in during the dark days of the Depression to root out fraudsters and get-rich-quick schemers and restore America's faith in Wall Street.
Gensler insists, over and over, that he's not racing any clock. But after one career on Wall Street, and well into a second in Washington, time is short.
Other famed Goldman Sachs Group alums — Hank Paulson, Lloyd Blankfein, Gary Cohn, to name a few — have moved on, retired richer. But Gensler is still hoping for a shot at history.
If former President Donald Trump or another Republican wins the White House in November, Gensler, like many Democrats, will likely be forced to move on. If President Joe Biden prevails, Gensler might serve out his SEC term into 2026, at which point he'll be pushing 70.
Either way, Gensler will almost certainly leave Washington without ever getting the job many suspect he's always burned for: US Treasury Secretary.
It hasn't been for lack of ambition or experience. He spent nearly two decades at Goldman. Then as a Treasury undersecretary, head of the Commodity Futures Trading Commission and now SEC chair, Gensler has thrived at the nexus of Wall Street and Washington, where he's been responsible for crafting the rulebook for the financial services sector.
The SEC said the suggestion that Gensler secretly wants to be Treasury Secretary is being used by opponents to attack his policy agenda. "As Chair Gensler has said multiple times, he couldn't be more honored to be the SEC chair," the agency added.
Former staff describe Gensler as an intense leader, pushing people to move faster, closing off backdoor channels to finance-industry lobbyists (many of them former SEC staffers) and discouraging gossip, that valuable Washington currency.
In fact, the SEC inspector general said in a 2022 report that Gensler's grueling pace was adding to agency-wide burnout. That, plus staff attrition, might expose SEC rules to legal challenges down the road, the report concluded. A follow-on IG report noted that 2023 was the year that external hires significantly surpassed departures. An outside nonprofit group also has ranked the SEC as the third best mid-size federal agency to work at.
Gensler contends the commission had to move quickly. The financial industry has faced "consequential, existential issues" since the onset of the Covid-19 pandemic, he said in the recent interview. Any SEC chair would've been obligated to respond, he adds.
Respond, Gensler has, with a rule-making agenda packed with 50-odd items. More than half of those plans have been finalized, and most haven't been challenged in court.
Going forward, the commission will stay within the "chalk lines" set by courts, Gensler said in the interview, while noting Congress has granted the SEC "strong authorities." The SEC undertakes rulemaking "consistent with its authorities and laws governing the administrative process," the agency added in its statement. "We will vigorously defend challenged rules in court."
Wall Street tends to complain that rules just get in the way, at least when its profits are at stake. Industry lobbyists warn regulation will strangle capitalism's animal spirts.
"What will markets look like in two years, when all these rules come online?" asks Bryan Corbett, the CEO of the Managed Funds Association, a hedge-fund trade group. For the first time in its three-decade-long history, the MFA has sued the SEC to block proposed regulations, including one requiring short-sellers to disclose more about their positions.
The MFA isn't the only one complaining about onerous regulation. Corporate America has a sympathetic ear these days from conservative jurists wary of federal overreach. A new Supreme Court case about fishing regulation could have big ramifications for federal agencies like the SEC and their power to police finance, healthcare, consumer safety and more.
Jill Fisch, a professor at the University of Pennsylvania School of Law, says the SEC today risks getting caught up in the broader backlash.
"We have a court that's expressed concern about the administrative state," Fisch says. The Supreme Court has signaled it might cut back on federal agencies' discretion and power, she says.
If the courts curtail the SEC's powers to protect investors, mandate disclosures and promote transparency, the implications for U.S. capital markets could be enormous, Fisch says.
Gensler, for instance, wants to require everyone from Walmart to oil majors to disclose more about carbon emissions — a potentially monumental legal headache. He's also raised questions about how stocks are traded. The SEC has proposed rules designed to ensure that Wall Street firms aren't taking advantage of individual investors. Those rules would require trades to be routed to exchanges for public auctions, rather than to wholesalers like Citadel Securities, part of the financial empire led by Ken Griffin.
Gensler's allies say the market reforms are long overdue.
"The best regulatory approach is to identify and solve problems before they ripen into a crisis," said Stephen Hall, legal director at Better Markets, a Washington advocacy group that's often allied itself to Gensler's initiatives.
Predictably, Griffin and his like have a different view.
"That's a great example of a solution — in this case it's an anti-solution — in search of a problem," Griffin said of the proposal at an industry conference in November.
In Washington and on Wall Street, some people are already speculating about Gensler's future and what the commission might look like without him.
During his time at the 5,000-person strong SEC and before, Gensler has at times tapped early-career lawyers and personnel who share his vision for change and market transparency, people who've worked with him say. That's handed those people a big opportunity. Sometimes, however, the tactic has come at the expense of staff who have more experience implementing policy and navigating legal challenges, the people said.
Given the legal winds — and the political ones ahead of the November election — Gensler will have to work hard just to stay the course he's charted.
The fake news about Bitcoin ETFs was embarrassing. Few are completely happy with how Gensler has handled crypto — or any number of other issues.
But as Gensler sees it, he's already notched several wins in his transformative agenda. "I'm feeling really good about the progress we've made," he says.
