On a warm April day in 2019, US Presidential candidate Joe Biden stood before a crowd of yellow shirt-wearing union members as he delivered the first of many speeches aimed at blue collar, working-class families who, he said, were the victims of Wall Street.
“Let me say this simply and clearly, and I mean this: The country wasn’t built by Wall Street bankers, CEOs and hedge fund managers. It was built by you. It was built by the great American middle class … It’s high time we helped Main Street,” he said.
Over the next several months, the Biden campaign outlined numerous plans to help working class families gain financial footing, with investor protection as a cornerstone. Since winning the White House and his Democratic party narrowly gaining control of both the House and Senate, investor protections have been a large part of his first-year economic agenda.
Perhaps, no place is more obvious than the Securities and Exchange Commission (SEC), the federal agency responsible for enforcing anti-market manipulation laws, headed by Gary Gensler, an avuncular man who tends to smile and give slight laughs while grilled at Congressional hearings.
However, Wall Street isn’t laughing. Gensler is pushing an ambitious agenda. Some 49 proposals are in the works, which has hedge funds, brokers and public companies worried. The SEC is doggedly pursuing case enforcement, which can lead to hefty fines, bad press and drowning share prices, and which aim to protect the investor.
Both Republican and Democratic Congressional sources told Capital.com the SEC’s emphasis on investor protection is a positive step. But that’s where the agreement ends. Republicans would like the SEC to take slower steps, let the markets do what they do with little government approach. Democrats are demanding reform with the speed of Usain Bolt.
In the past few months, the SEC has created more than two dozen teams to ink more than 500 rule proposals covering everything from hedge funds to cryptocurrency to stock exchange regulations. The SEC is serious about reform, with team consisting of staff attorneys and economists to examine the benefits and cost of each proposal, something required under federal law.
The SEC “is doing too much, way too fast. It’s simply overreaching,” said one GOP source. Democrats disagree, saying the SEC is finally protecting investors as it was chartered to do nearly 90 years ago.
One of the most vexing issues facing the SEC is how to oversee digital assets. During a recent Senate hearing, Gensler agreed with a Senate Democrat who called the digital asset landscape “the wild West.”
“I’d add an extra wild to call it. The wild, wild West,” Gensler replied.
Testifying before various Congressional committees in the last months, Gensler said SEC staffers are studying how to regulate and tax cryptocurrency. Options include treating it like currency or securities, where it would be taxed like other investments.
The Internal Revenue Service (IRS) considers crypto property, while the Commodities Futures Trading Commission (CFTC) said it’s a commodity.
During a 5 October House Finance Services committee hearing, ranking member Rep. Patrick McHenry asked Gensler where the SEC stands on cryptocurrency.
“You have made a number of concerning and contradictory public statements regarding crypto assets and other innovative technology. When you were here in May, you stated that there was a need for additional legislation to appropriately regulate digital asset exchanges. Then, just a few weeks ago, when you testified before the Senate Banking committee, you stated that there was a ‘great deal’ of clarity in the law,” the North Carolina Republican said.
Gensler told the committee the SEC recommends cryptocurrency be treated as a security, not a currency. That caused a headache for the crypto industry, which say the assets aren’t a security, but a currency. If the SEC deems the industry a security, it will place them under additional SEC oversight.
In early summer, Gensler requested a regulation review underpinning equity trading “to maintain fair, orderly and efficient markets, while ensuring we protect investors and facilitate capital formation.”
While Democrats want to revamp the equity markets, pointing to the need after this summer’s wild stock trading. The meme-stock mania led to several congressional hearings and caught the attention of firms like Robinhood Markets and Citadel Securities, as tighter regulations would hinder their cash flow.
Leaders from those companies and the cryptocurrency industry have loudly complained about the poor treatment they receive and ambiguous rules when meeting with SEC officials.
Cryptocurrency, financial leaders and Republicans say SEC officials brush off those complaints. Gensler, a 63-year-old widower and father of three, had a reputation as a fighter while chairing the Commodity Futures Trading Commission under the Obama administration, just smiles and says the SEC is always welcoming to those industries.
Congressional sources told Capital.com the SEC tends to be a step behind Wall Street when it comes to technology. That may be true, they said, when dealing with social media memes. This year’s gamification of GameStop and AMC Entertainment shares snafus are two examples of the commission trying to solve complex situations and the Biden administration’s mission of investor protection.
In January, GameStop’s shares hit the stratosphere, jumping 1,700% after loyal customers thought its shares were underrated and pushed them higher. The SEC requested GameStop records on trading activities for an investigation in early summer. Both chambers of Congress also started investigating the incident.
During his confirmation hearing in April, Gensler said he was leery of app-based trading, and that it’s another area where the SEC is struggling to find a solution. The number of investors using app-based brokerages, such as Robinhood, continues to grow. Currently, the SEC is examining if those devices are offering investment opinions. If so, the companies will face more regulations.
The SEC did not return Capital.com’s messages seeking comment for this story.
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