Through a series of high-profile lawsuits, Gensler has successfully curbed the most outrageous behavior in the cryptocurrency industry.

Source: FORTUNE

Translation: Yanan, BitpushNews

The two-minute video has low-quality visuals and rough production. The fast and clumsy camera transitions lead to deliberate and tacky scene reproductions, giving an overall feeling of a high school AV club production. However, the protagonist of this video is quite unusual. He is dressed in a dark gray suit jacket and a blue shirt, exuding a typical official image. His eyes are firmly fixed on the camera, and his hands are constantly making gestures.

This protagonist is Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC). As the background music plays, the screen displays another episode of "Office Hours With Gary Gensler." Typically, these short films are cheerful explanations of topics such as SPACs and offshore shell companies. However, this episode is special because it is about celebrity endorsements of investment products and the associated risks.

On October 3, 2022, Gensler shared this episode with his 250,000 Twitter followers. This episode was particularly significant at the time because its release coincided with another major news item: the SEC's pursuit of a $1.26 million settlement from Kim Kardashian for promoting a fraudulent cryptocurrency on Instagram without disclosing her paid endorsement responsibilities. The SEC's video aired at the beginning of Monday morning news and had the intended effect: it received widespread praise from major media outlets, from CNBC to the New York Post. With the video's broadcast and media coverage, the SEC and Gensler became the focus of attention.

Federal agency heads—usually polite lawyer types—typically do not spend their time producing semi-humorous social videos. However, Gensler has released over 30 episodes of "Office Hours," each of which could become the focus of media attention. In early November, in an interview with the media, Gensler described "Office Hours" as his core mission. He stated that investor protection and education, "interaction and engagement with the public," are things that the SEC should do more of, and in a more creative way, with the aim of providing investors with information to make wise decisions. "This is key to articulating the reform agenda," he said.

At the same time, "Office Hours" exudes a bold and unapologetic debating style, which is typical of Gensler. He is a unique chairman of the SEC and a frequent presence on television and social media. He is eager to fight—whether it's a battle of wits with cryptocurrency advocates, endless debates with lawmakers on Capitol Hill, or arguments with other bureaucrats about who can make rules for investors—he is always at the forefront.

Gensler's tough approach has made him one of the most prominent figures in Washington. He is over halfway through his five-year term at the SEC, but he has never had as much power to influence investors' lives as he does now. He has been intensifying the implementation of the Biden administration's priorities, including corporate climate disclosure, strengthening regulation of investment advisers, and cracking down on consumer-oriented, technology-driven products such as Robinhood and cryptocurrency projects.

However, it has been proven that Gensler's aggressive stance has caused divisions, and critics and allies alike believe that his aggressive regulatory approach and pursuit of exposure may ultimately backfire. Due to opposition from the private sector and increasing dissatisfaction in Congress, much of his agenda has been deadlocked.

To assess Gensler's impact, the media interviewed over 30 financial experts, political figures, and current and former employees of various levels of the SEC and the Commodity Futures Trading Commission (CFTC), many of whom were only willing to disclose approximate background information due to Gensler's significant influence in Washington and his ongoing oversight or management of many of these institutions.

In the interviews with various individuals, we see the image of a leader whose drive is beyond doubt. However, many are concerned that he may lead his institution in the wrong direction. "If you never fail, it means you haven't pushed the boundaries as much as possible," said Lee Reiners, a lecturer at Duke University's Center for Financial Economics and an admirer of Gensler. But a recently departed SEC employee expressed a darker sentiment, describing unrealized aspirations and internal conflicts within the institution: "The pressure and sense of defeat are constantly accumulating," the employee said.

The CFTC Deity

At the end of 2008, as the United States was severely impacted by the financial crisis, President Obama chose Gensler for an important position. He was appointed as the head of the CFTC—a relatively unknown agency responsible for regulating complex financial derivatives that triggered the market collapse.

At first glance, Gensler seemed like a typical Washington "revolving-door pusher"—a wealthy banker who moved back and forth between the private sector and government positions, lending a hand to his former colleagues. In 1979, at the age of 21, Gensler earned an MBA from the Wharton School and then joined Goldman Sachs, becoming one of the youngest partners in the company's history. He had previously served in government, but that was during the lax regulatory period of the Clinton administration's Treasury Department. This background made him a thorn in the side of progressives: Senators like Bernie Sanders had obstructed and delayed Gensler's nomination for nearly five months.

To counter this, Gensler used his superpowers: he called Tyson Slocum, the energy program director at the left-wing consumer advocacy group Public Citizen, and Slocum was surprised to find Gensler reaching out to him. Gensler spent two hours defending himself. Shortly thereafter, he gained Slocum's support. When Slocum faced opposition from other progressives because of Gensler, he would respond, "None of you took the time to meet with Gary Gensler in person."

Sanders eventually relented on Gensler's nomination, and Gensler quickly helped craft a key provision in the landmark Dodd-Frank Act, granting the CFTC broad powers. Over the next five years, he actively pushed for the creation of dozens of new regulations. No longer a confidant of Wall Street, Gensler reshaped himself as a reformer in the financial world. As a former employee who joined the CFTC after Gensler said, "He is a deity."

Several individuals close to Gensler have stated that the death of his wife in 2006 led him to reevaluate his life priorities as he raised three daughters alone. In a 2012 article in Time magazine, Gensler recalled reluctantly washing his eldest daughter's dirty laundry when she returned home from a trip. (Gensler has not remarried to this day.)

However, at a financial technology conference in Washington, Gensler denied claims that his regulatory beliefs had changed. He stated that when he worked in Goldman Sachs' mergers and acquisitions department, clients saw him as a compliance resource—in a positive way. "It was a good thing; we actually had some rules," he recalled.

Gensler likes to elongate his vowels when speaking, a trait he picked up from his childhood in Baltimore. His father sold cigarettes and pinball machines in Baltimore, and a young Gensler would help collect nickels. Unlike his parents, he and his twin brother both earned college degrees. At the age of 20, Gensler taught undergraduate accounting courses at the University of Pennsylvania. He later wryly described the university's decision as dereliction of duty. Bartlett Naylor, a financial policy advocate at Public Citizen, said, "He's like an energetic rabbit. Clearly, even standing next to other outstanding figures, he stands out like a beacon among many."

Nevertheless, this energy left CFTC colleagues feeling exhausted. Gensler pushed the traditionally nine-to-five government agency to adopt Wall Street's working hours, much to the chagrin of the civil servants. A former employee recalled that despite Gensler's wealth from Goldman Sachs, he was still frugal. After his late wife's travel van became inoperable, he finally bought a new car. Gensler's daughters installed Bluetooth in the new car, which was a nightmare for his colleagues. "You couldn't get him off the phone," the employee told the media, "and after a while, your arm would get tired from holding the phone."

Another characteristic of Gensler during his time at the CFTC was his excessive ambition and uncompromising nature, foreshadowing his style of work at the SEC. At one point, he implemented what later became known as the "elevator bank," expanding the CFTC's oversight of foreign transactions, alienating bankers both domestically and internationally. While Gensler and others defended the move as a long-overdue reform, a former CFTC official stated that it "cut off communication with international peers." It could be said that Gensler left a mess for others to clean up.

Senior figures within the CFTC also indicated that while Gensler worked to solidify the authority of the CFTC, he was eager to push forward various initiatives without adequate funding, particularly in real estate. Gensler signed leases across the country in hopes of filling offices with new staff. During his five-year tenure, the CFTC's office space increased by nearly 75%. However, Congress never approved enough funding to fill these offices. A 2016 Government Accountability Office report revealed that the Washington headquarters had 20% vacant space, the New York office had 32% vacant space, and the Kansas City office had nearly 60% vacant space.

Current CFTC employees pointed out that the vacant office space in Washington, D.C. was Gensler's legacy. They told the media that these desolate halls were "a gift from Gensler."

Shortly after leaving the CFTC, Gensler joined Hillary Clinton's 2016 presidential campaign as chief financial officer. But even before Hillary Clinton lost to Donald Trump, colleagues noticed that Gensler got along well with Senator Elizabeth Warren. A senior Clinton aide gave Gensler the nickname "Elizabeth Whisperer." Elizabeth Warren, a Harvard Law professor from a working-class background in Oklahoma, rose to fame with sharp populist criticisms of the financial system. Both she and Gensler were involved in drafting the Dodd-Frank Act.

Four years later, Warren lost to Joe Biden in the Democratic primary, but she seemed to win the regulatory battle, prompting the presidential candidate to adopt her confrontational stance toward Wall Street and banks. Some sources indicated that Gensler and Warren shaped the financial regulatory approach of the Biden administration—Biden's appointment of Gensler as SEC chairman before taking office was a clear indication of this.

This position was seen by many as a consolation prize. There is a belief in Washington that since the Obama administration, Gensler has always wanted to be the Secretary of the Treasury. Although his allies were always cautious, this belief was repeatedly brought up by relevant individuals in every interview with Fortune magazine. "Gary is singularly focused on being the best SEC chairman ever," said Dennis Kelleher, head of the progressive think tank Better Markets. "I've never talked to him about Treasury." (Gensler has never publicly expressed a desire for this position.)

However, even without cabinet-level power, leading the SEC allowed Gensler to have a greater impact on the market—more staff and bigger goals.

Cryptocurrency Battle

"Although you might not think so, I don't spend most of my time on cryptocurrency," Gensler said in an interview. He was mocking the media's coverage of his struggle with the industry—but outsiders might think that Gensler is constantly studying cryptocurrency.

After working for Hillary's campaign team, Gensler was invited to teach at MIT. He noticed that the school did not have any courses on blockchain. "Someone should teach this," Gensler recalled saying. In 2018, he became that person. "I tried my best to teach from a neutral standpoint," Gensler said, "neither as a Bitcoin extremist nor an extreme opponent."

Many cryptocurrency enthusiasts were able to audit this course. A faculty member recorded the course and uploaded it to YouTube. In the class, Gensler delved into the technical aspects of blockchain and explored the legal implications of the technology and its potential impact on investors. Throughout the process, Gensler appeared fair and curious. Therefore, when he was promoted to SEC chairman, some were hopeful for the development of the cryptocurrency industry due to his forward-thinking approach to cryptocurrencies.

However, after assuming office, Gensler's attitude toward the cryptocurrency industry changed. During his tenure, as the COVID-19 pandemic raged, a new generation of speculators flooded into the cryptocurrency space: the prices of Bitcoin and other currencies soared, and with the increase in speculation, cryptocurrency scams continued to emerge.

In 2022, the cryptocurrency bubble burst, and major cryptocurrency projects such as Terra, Celsius, and FTX collapsed. Subsequently, the SEC's "hostile" attitude toward the cryptocurrency industry became more apparent. Lawsuits were filed against celebrities like Kim Kardashian for failing to disclose their paid endorsements when promoting cryptocurrency projects. Additionally, the SEC sued Coinbase and other exchanges, which believed they were operating in compliance with regulations. However, the SEC argued that the cryptocurrencies they offered were not registered as securities and that there were other violations.

Gensler stated that these actions clearly fell within the SEC's purview. "Many people are trying to sell investors a better future, even though [cryptocurrency supporters] haven't really demonstrated much utility in this area," Gensler said. "You'll see one company after another, one entrepreneur after another, misleading the public and heading for bankruptcy." He often quoted Franklin D. Roosevelt (who played a key role in the establishment of the SEC), who, after the 1929 U.S. stock market crash, proposed regulatory requirements for "full, true disclosure of information" to curb the disorderly securities market.

But Gensler's penchant for mocking opponents on social media has no precedent in the new administration. (The passionate backlash from entrepreneurs and advocates in the cryptocurrency industry is also noteworthy—many of them are masters of memes themselves.) Gensler often posts sarcastic posts mocking the cryptocurrency industry and its cartoonish villainous image. On Halloween, he tweeted a cryptocurrency joke: "If Satoshi Nakamoto dressed up as Satoshi Nakamoto for Halloween, would we recognize him?" He then said that cryptocurrency companies that deceive investors should start complying with legal requirements and treat their investors well. A few weeks later, when chatting with the media, he proudly said that the tweet idea was his own; his public affairs director helped craft the wording.

Of course, exposing fraud is an important responsibility of the SEC. But most leaders in the cryptocurrency industry feel that they have always been in compliance with the law—they believe Gensler should create new rules to help them better serve their customers, rather than punish them based on old rules that do not apply to this new technology. In the early days of his tenure at the SEC, Gensler told Congress that he believed there should be new legislation to regulate the industry. But as the current deadlock shows, Congress has yet to pass any bills.

Eager to fill regulatory gaps with existing laws, Gensler has embroiled the cryptocurrency industry in jurisdictional issues: are cryptocurrencies commodities like gold bars, or securities like stocks or bonds? Everyone agrees that Bitcoin is a commodity—it was labeled as such in 2015, when the entire cryptocurrency industry was still in its infancy. But Gensler believes that, apart from Bitcoin, almost all other cryptocurrencies are securities—a financial instrument that allows people to invest in a common enterprise and profit from it.

Every time he is called to testify before Congress, the SEC chief tells cryptocurrency companies the same thing: "Come register with me, just like securities brokers and exchanges." "We don't allow unregistered stocks to be listed on the New York Stock Exchange," said Hilary Allen, a law professor at a U.S. university. "So why should we allow unregistered tokens to be listed on cryptocurrency exchanges?" Many industry insiders believe Gensler's statements are hypocritical. They believe that existing securities laws are not suitable for these novel, decentralized business models.

At the same time, Gensler is indecisive about the definition of specific cryptocurrencies (he refused to make a clear statement on whether Ethereum is a security in a media interview. A former SEC employee said that this indecisiveness "makes the SEC look foolish"). Therefore, the deadlock continues. This situation has led to a lack of clear understanding among investors about cryptocurrency projects, especially against the backdrop of traditional finance embracing cryptocurrencies such as Bitcoin and Ethereum.

The debate over commodities and securities has also sown discord between Gensler's current agency and his former employer. CFTC Commissioner Summer Mersinger mentioned an enforcement action against Coinbase employees. The employee was accused of insider trading of tokens. The CFTC believes that some cryptocurrencies are commodities, so it plans to file its own lawsuit. But the SEC informed the agency that these tokens will be treated as securities. Mersinger is concerned that the court may dismiss the lawsuit due to jurisdictional issues. She said, "Our enforcement departments have always had a good working relationship. But I now think that relationship… is a bit tense."

A CFTC employee put it more bluntly: "It's like a terrible, abnormal marriage. The cooperation between the two enforcement departments has basically ceased to exist."

I Don't Want to Lose

Many employees say that in climate issues and other regulatory areas, Gensler often takes a stubborn approach, insisting that the proposed rules should reflect his vision and should not be negotiated or weakened. This approach was usually effective in his work at the CFTC. But in that position, Gensler had clear authorization from Congress to shake up the regulatory landscape. Now, he has unilaterally set a new regulatory course without strong legislative authorization.

Mary Jo White, who served as SEC chairman during the Dodd-Frank era, says that one of the biggest challenges Gensler may face is the lack of a clear legislative agenda. She said that clear authorization can limit the discretion of regulators and prevent them from deviating from the right path due to personal agendas. (She added, "Gary is very smart; he understands the market and has sensitivity and awareness of legal risks.")

After taking over the SEC, Gensler's personnel decisions also attracted attention. He chose a corporate defense lawyer to serve as the enforcement chief, which raised concerns among progressives. However, the lawyer resigned shortly thereafter. In other personnel appointments, he took the opposite approach, hiring staff with political, public relations, and academic backgrounds. But longtime employees were not satisfied with this. "This reflects Elizabeth Warren's approach—she is very skeptical of industry insiders playing a role in regulation," said a former SEC employee.

Gensler's team has achieved victories on some issues, most notably the requirement for private fund advisers (including hedge funds, venture capital, and private equity) to disclose information to their investors. But the most controversial focus is on climate disclosure, which is also a major priority for the Biden administration. According to a proposed rule developed by the SEC under Gensler's leadership, public companies must disclose their greenhouse gas emissions and potential climate-related risks. "We are indeed playing a key role in helping ensure that public companies disclose their significant risks comprehensively, fairly, and truthfully," Gensler said in a speech in July.

A former SEC employee recalled that in the first few weeks of his tenure, Gensler held a meeting on climate change. "I don't want to be sued," he told the staff at the meeting. "You will be sued," his general counsel replied. "So, I don't want to lose," Gensler said.

Regardless of winning or losing, Gensler will definitely end up in court. The political and industry circles believe that climate rules far exceed the SEC's jurisdiction. The rule requires some companies to report their indirect greenhouse gas emissions from their supply chains—this goes even further than what some environmental companies are currently prepared to do. "The [SEC has not] finalized the rule, and I think they realize that the rule is easily subject to legal challenges," said Duke University lecturer Reiners. "To please progressives, their reach is getting longer and longer."

In fact, the finalization and perfection of regulatory rules have become a headache for Gensler. According to the Securities Industry and Financial Markets Association's data, in the first 30 months of his tenure, the proposed rules issued by Gensler were 62% and 91% more than his two most recent predecessors, covering a wide range from how broker-dealers use customer-related predictive analytics to partial reforms of the U.S. trading system. However, such actions require industry feedback, and Gensler's ambitious approach has met with resistance from the entire financial industry. In August of this year, Bloomberg reported that Gensler's rule proposals were passing at the slowest pace in decades. (In a September hearing in the House of Representatives, Gensler testified that his rulemaking is based on a "coherent agenda" authorized by Congress and that the agency values public feedback.)

Nevertheless, the divergence between regulation and the industry has had some impact on SEC employees. A former employee believes that Gensler has shaken the entrenched bureaucracy, but added that Gensler's aggressive approach has driven many employees into the private sector. Under Gensler's leadership, the employee attrition rate rose from an average of 4% in the three years before he took office to 6.3% in 2022, but then fell back to 4.7% in 2023.

Another employee who left under Gensler's leadership believes that the chairman's motivation is ideological rather than based on finding the most favorable approach for the industry. "I feel like I'm a stenographer for views that I don't particularly agree with," they said. "I don't think securities laws should be political."

See You in Court?

Although Gensler still has nearly three years left in his term, his opportunities to exert influence may be diminishing. His political capital seems to be waning, with even members of his own party increasing their attacks on him in congressional hearings, especially regarding climate and cryptocurrency. "Gary Gensler is a politician masquerading as a regulator," bluntly criticized Democratic Congressman Ritchie Torres, who supports the cryptocurrency industry. At the same time, the rulemaking that best reflects Gensler's ambition and the most expansive litigation are facing difficulties in the comment period and in court. In fact, the court may be the key to determining Gensler's legacy and the future of the agency he is in.

Recently, the U.S. judicial system has shown a clear rightward shift. The current Supreme Court is the most conservative in nearly a century, showing a contemptuous attitude towards the "administrative state," and the broad discretion exercised by agencies like the SEC in regulating businesses. Any lawsuits brought by Gensler at the SEC, or against him, increase the risk of court rulings restricting the SEC from acting beyond the clear authorization of Congress. Currently, the Supreme Court will hear a case related to the SEC—and some cryptocurrency supporters hope that cases involving the cryptocurrency industry, including the SEC's lawsuits against Coinbase and blockchain company Ripple, will also be quickly followed up and addressed.

62%

Compared to his predecessors, during the first 30 months of Gensler's tenure, the SEC's proposed financial rules increased by 62%.

It's not just Gensler among current regulators who are taking action. In fact, this is part of a broader strategy of the Biden administration, advocated by Warren and implemented by other officials, including FTC Chair Lina Khan. These agencies play a tough cop role in the regulatory field, including bringing lawsuits against industry leaders. But if the courts overturn these lawsuits, this strategy may harm the regulators' long-term goals, only achieving short-term victories. However, Reiners of Duke University said that these tough cops are "willing to take risks," and Gensler is "doing what Biden hired him to do."

Regardless of the outcome, Gensler remains tireless in his "fight." In November, when he was interviewed at Washington Fintech Week, cryptocurrency advocates in the audience raised their phones to capture the every move of this old adversary. Gensler made a subtle joke, saying that cryptocurrencies are as ancient as telegrams. The audience glared at him. But he had just started warming up and felt good every moment.

Quick Wins, Followed by a Long Battle

Since becoming SEC chairman in April 2021, Gary Gensler has proposed a series of rules at a pace far exceeding that of his predecessors. Some of these proposals have been implemented, including regulations on mutual fund fees and cybersecurity disclosures. However, most rules have not yet been finalized—some of the most significant measures may be blocked in court or overturned entirely.

Climate Change

Gensler's most notable move is to require companies to disclose their greenhouse gas emissions in detail and comprehensively. This requirement aligns with the Biden administration's push to address climate change, but it has sparked strong opposition from various industries. The industry believes that this requirement is too cumbersome and unconstitutional. While Gensler did indeed pass a regulation to combat "greenwashing" by companies, the fate of more far-reaching regulations on climate issues is now in jeopardy.

Trading Rules

SEC Chairman is engaged in a fierce battle with Wall Street over the restructuring of trading system rules. Some believe that these rules led to the meme stock mania of 2021. The most controversial proposal is to replace the so-called payment for order flow with a new auction system, which helps brokers subsidize lower trading commissions. Institutions such as Charles Schwab and the New York Stock Exchange strongly oppose this.

Cryptocurrency

Through a series of high-profile lawsuits, Gensler has successfully curbed the most outrageous behavior in the cryptocurrency industry. Some major companies, especially the exchange Coinbase, are fighting back in court. They have raised questions, attempting to limit the SEC's jurisdiction. If judicial rulings resulting from such lawsuits restrict the SEC's power, other related lawsuits could become stumbling blocks to hinder Gensler's further actions.

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