WHEN: Today, Thursday, November 10, 2022
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with SEC Chair Gary Gensler on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Thursday, November 10. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Meantime, I want to get you the breaking story of the morning right now. Crypto exchange FTX on the verge of collapse after Binance backed out of its plans to acquire Sam Bankman-Fried’s struggling company. According to people familiar with matter, Sam Bankman-Fried told investors that FTX is facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding. Reports say the SEC is investigating FTX and right now we want to bring in the chairman of the SEC, Gary Gensler. Good morning to you, Gary—
GARY GENSLER: Good to be with you, Andrew.
SORKIN: Thank you for joining us. Lots of questions this morning for you about what is happening and so let’s just start with what do you know and what are you investigating?
GENSLER: Andrew, as you can imagine and your viewers know that I can’t speak about any possible investigations, but let’s step back and say what’s happening here and it’s it’s really as old as finance and as antiquity. When you you mix together a bunch of customer money, non-disclosure and leverage borrowing against it and inside, you know, these companies trading, investors get hurt. And I think just looking at what we see in the press if I can stay with that just Andrew, this story has been going on for many months. You remember the collapse of Terra LUNA and a bunch of crypto lending platforms, what it looks like in the last few days, this is all interconnected. This is a very interconnected world in crypto with a few concentrated players of the middle and one of those concentrated players would have the toxic combinations of lack of disclosure, customer money, a lot of leverage meaning borrowing and then trying to invest with that. And then when markets turned on ’em, it appears that a lot of customers lost money and that’s that’s where our mission is about those customers.
SORKIN: Well, let’s talk about that Gary because critics would say look, you have been talking about the need for regulating and yet have not. There’s been lots of focus, we had you on last time when you went after Kim Kardashian, but on a relative basis going after Kim Kardashian compared to what is now a massive undoing of FTX, is it enough? What do you say about that?
GENSLER: Look, I think that investors need better protection in this space. But I would say this, this is a field that’s significantly non-compliant, but it is, it’s got regulation and those regulations are often very clear and we have multiple paths. And one path is working with those crypto exchanges, crypto lending platforms, and to get them properly registered and why that matters is that so the public is protected. But we have another path which is enforcement. We’ve brought between my predecessor and the teams now at the SEC at least 100 actions in this case and we’ve been very clear in these various enforcement actions and we had a big win even this week on a crypto token called LBRY where a court clearly said you’ve been on fair notice and yes, this is a securities under the securities law—
SORKIN: But Gary, in fairness, in fairness, there are millions if not billions of dollars that are gonna get tied up that potentially will get lost in this situation by investors, not just retail investors, but pensions that have given money to venture capitalists that have invested in these things. Shouldn’t this be more regulated?
GENSLER: Yes, Andrew, and the laws are clear and and look the runway is running out. I mean, the American public and investors around the globe are getting hurt by a field that says, they put a lot of fancy talk around it, Andrew, and the technology is interesting. And I taught it at MIT and I think there’s some interest innovations here. But we still need investor protection and so what I would say is come in and talk to us. You’ve heard that before the runway is getting shorter and the laws are clear and it’s pretty rich for me when I think about it when look, there’s also celebrities, you talked about celebrities. There’s celebrity CEOs in this space as well, celebrity crypto entrepreneurs and so the public can fall prey to their promotions, their marketing and the like and it’s really important. Our third path is also investor education. Going on a show like this is also to say to the public beware, this is highly speculative, it is regulated but without prejudging anyone’s circumstance, largely non-compliant.
SORKIN: Gary, you said people should come in, if you will. Sam Bankman-Fried, it appears from your calendar on March 29, 2022 at 4pm came in and actually met with you along with Brad Katsuyama of IEX someone who has draped himself in the flag if you will of an honorable exchange. Do you feel like you were hoodwinked?
GENSLER: I think we’ve been clear in these meetings and you can look at my calendar’s public, many meetings with folks in this industry, it’s very clear in these meetings, same message to the public, same message to them that non-compliance is not going to work, the public is going to be hurt, but also we’re going to continue on these dual paths and if we need to going to be the cop on the beat, going into court, putting the facts and the law in front of judges.
BECKY QUICK: Gary, being the cop on the beat, I guess if we were looking at your MO to date, going after somebody like Kim Kardashian because it’s a celebrity because maybe that’s a signal more broadly. You just mentioned that there are some celebrity CEOs here. Is it fair to think that if you’re going to continue in that vein, you’re going to be targeting those celebrity CEOs again because it sends a broad message and maybe gets people in line a little more quickly.
GENSLER: Well it’s also if I could Becky, it’s about the platforms or the intermediaries. This is not like the New York Stock Exchange or NASDAQ. These platforms and there’s just a handful of lending platforms and a handful of so-called exchanges which commingle. It’s also another toxic combination where they they take people’s money, they borrow against it, it’s it’s not much disclosure, and then they trade against their customers. So it’s getting and focusing on thos platforms. Building the evidence, building the facts often takes time. I’ll just use one example which is public so I can say this but in Terra LUNA, that legal entity, we filed, served a subpoena in September of last year. We actually opened the investigation earlier. That’s all public. That’s why I can say it. And that was challenged in court at the district court, at the appellate court all the way to assert petition at the Supreme Court that took a year, so defendants also have appropriately an ability to go into court. I think the better path is come in, work with us, get registered, we can use some exemptive authority to mold some of these registrations, but we’re going to continue on these three paths, investor education, trying to get the the the intermediaries registered properly to protect the public and also being the cop on the beat.
QUICK: So that does, that’s the long answer for yes, you are going to be targeting them I think. Let me ask you something else that just feels wrong to me. I don’t know if it’s illegal, but watching how this stuff plays out in the headlines where you see this deal. We’ve got a deal a letter of intent, maybe this deal is going to go through we’re looking at it, you see huge moves in all the underlying issues underneath it as a result CZ with financing this first now you’ve got Justin Tron saying he’s putting together a solution without any details on it. TRX momentarily surged 4,000% on FTX after that happened there, all of these issues that are out there and it moves things in huge ways and there’s real money that’s at play here and real investors who are potentially getting defrauded on this stuff. Is it illegal when you look into it?
GENSLER: I couldn’t agree with you more. It’s, there’s 10,000 plus tokens and there’s as many as 1,000 coming on every month to quarter and so many of them have very thin trading and the purported values and I say purported values might be only on very few trades, and then others are sitting with large buckets of these tokens. And, you know, we saw this happen with the Terra LUNA tokens earlier this year and there was a token in the middle of this as well. What was its value where there were only a few holders of it, what was making those values? Secondly, you said disclosure. In our securities laws, if you come to a merger agreement, even a letter of intent, there has to be full and fair and truthful disclosure.
SORKIN: Let me ask you another question Gary which actually relates to Tether and stablecoins. Tether’s now under a buck for and your former your predecessor Jay Clayton has called for regulation on stablecoins. I raised the question because here we are, again, don’t we need to know whether whether a bank deposit is actually bank deposit or whether it’s a money market at this point.
GENSLER: Look, I’ve said this for some time. The so-called purported stablecoins if they are not that stable or if they pay a yield or reward in interest directly or indirectly, those are indications that the public is anticipating profits and these could be securities under Securities Laws. But I think that the public has seen that these are very much like the money market funds, as you say, they sometimes don’t trade at par and we don’t have the proper disclosure again behind, what stands behind those claims.
SORKIN: But Gary, what do you say to the critics who say this is happening on your watch. You are the cop on the beat. You’ve tried to claim jurisdiction for this arena as there’s been, as you know, a battle between the SEC and the CFTC over who’s in charge.
GENSLER: Andrew, for part of it, I think that and I was honored to chair the Commodity Futures Trading Commission. I think very highly, there’s part of this market non security crypto tokens. I think it’s small in number of tokens it might be significant in size of market cap. So I think there’s work for both of us market regulators as well as other regulators around anti money laundering and sanctions. I mean this field really needs to come into compliance and in terms of our efforts of the SEC, I can’t be prouder of the staff at the SEC. But we too have limited resources. We have $100 trillion capital market to oversee, and that 100 trillion-dollar capital markets, the stock market and bond markets, treasuries and alike, that’s an important responsibility and we don’t want to undermine that relative—
SORKIN: But what’s the, but what’s the pubic supposed to think when we have a company that was worth literally $32 billion with some of the biggest venture capital firms out there, by the way, supported by pension funds in large part, teachers, firemen and the like, investing in a company that, by the way, didn’t have a CFO?
GENSLER: Look, I think it’s pretty clear Andrew and we’re going to do what Congress and the American public expect. We’re going to be clear in our voice about the risks, the speculative risk and what is appears to be largely non-compliant actors. We are going to continue to be working with industry to try and get them properly registered but also that cop on the beat. These things take time and you would want them to take time so that we build the facts out, but I would say the runway is getting shorter.
SORKIN: If you’re a crypto investor today, how much confidence should you have in the system?
GENSLER: I would say to the American public, be careful, beware. There’s still a lot of noncompliance and when you give somebody your token, and they go down, you’re going to just stand in line at a bankruptcy court and they may be taking your token and doing all sorts of things without proper disclosure. Now, if it’s one to one back, and there’s really good disclosure, and your protect against fraud, manipulation, that’s all we’re saying. That’s what the securities laws are. There is a path forward to these intermediaries.
SORKIN: But for Americans who have money on an exchange like a Coinbase, which is which is basically a publicly traded company, also under your jurisdiction, or a Binance. The two biggest ones at this point that are remaining. Should they feel confident that they can get their money out of those those firms?
GENSLER: I am not going to speak to any one platform, but I would say that you have rescued these, the rules and the laws are clear, but do not assume that these firms are complying with the rules and the laws that the New York Stock Exchange or the biggest brokerage apps are complying with.
SORKIN: Gary Gensler, we appreciate you coming on especially during what has turned out to be quite a drama and crisis. We will continue to keep our eyes on the story and we hope to talk to you again very very soon as this continues to play out.
GENSLER: Thank you Andrew, Becky.
