WEBVTT

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So anytime they're moving into new space
that moves quickly, the sec falls short.

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That's just the way it's always been. So you know, I can

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follow the agency for not having moved
quicker, both under the prior administration of

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the current administration and letting some of
these technologies, some of these tokens grow

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to a point where it became harder
to step in with enforcement. I tend

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to think the enforcement actions they file
have been legally sound. Again, with

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the exchange cases, I think those
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If you'd like to learn more about
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description. Welcome to the Thinking Crypto
Podcast. I'm your host, Tony Edward

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and with me today is Mark Fagel, who is a former SEC Regional director,

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a current lecturer at Stanford Law School
and author. Mark. Great to

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have you on, Thanks Tony.
Good, great to be here. Mark.

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I appreciate you taking the time to
do this. I know you don't

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do many interviews and I follow you
on Twitter or what Elon calls X and

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appreciate your insights on the crypto acid
class. So I have a lot of

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questions for you, but let's start
with your background. Where are you from?

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Where'd you grow up? Sure,
I'm an old fashioned midwesterner. I

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grew up in Chicago and then after
finishing law school, moved out to San

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Francisco. My wife was getting her
MBA, so we thought we'd try out

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California and it's been about thirty something
years. Once we got here, like,

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we're never leaving. And how did
you end up at the SEC?

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So fairly traditional way. I spent
about six years at a large law firm,

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as a lot of us do after
law school, mainly doing defense work,

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a lot of SEC investigation, securities
class actions, and then after about

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six years of that, I decided
I was ready to make a move.

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I had some friends at the SEC
sounded like a great job, which it

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was, so I moved over.
How long were you there and were there

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any interesting cases that you worked on? Sure? I went there thinking I

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would do it for a few years
to try it out and learn a little

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bit more about SEC enforcement. Ended
up spending sixteen years there. So I

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started as an enforcement staff attorney and
then every few years worked my way up

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through the ranks until I was in
charge of the regional office. So I

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was overseeing all of the investigations in
the San Francisco region and a lot of

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fantastic cases. I did a little
of everything. I did Foreign corrent practices,

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Act financial fraud, a lot of
Silicon Valley fraud cases, obviously a

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public company insider trading outright Ponzi schemes. So I had a really good mix

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of a little of everything. Wow. Now it's funny because you don't really

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hear too much about what may have
happened in Silicon value with fraud, and

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maybe I was insulate from that,
you know, and now I'm hearing more

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of it because of crypto. But
was there a good amount of fraud in

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the Silicon Valley? You know?
Dot Com one, dot Com two,

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a web one point Web two point
zero. Yeah, I mean there are

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a few things going on. One
was traditional financial reporting frauds. So a

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lot of public companies, especially when
they're starting out, may not have their

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internal controls in place. So we
would repeatedly see public companies, a lot

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of tech companies which would be reporting
financial results which were not accurate. One

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might say we had a big scandal
out here that well, it was national

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stock option backdating, which was a
big phenomenon nationwide, but a lot of

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that here at tech and tech companies
in Silicon Valley where public companies were rewarding

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their executives with stock options, and
in order to avoid having to report the

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cost of doing so to their shareholders, were basically changing the dates on those

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options. So that was a huge
scandal a lot of companies. Beyond financial

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fraud, I think in the initial
Internet era, there was a lot of

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more traditional fraud, just outright scams
when the Internet was new and people didn't

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really know what to expect. One
of the first cases I worked on,

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I think it was the first online
Ponzi scheme ever. It was someone out

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here in Silicon Valley who created an
online company and was selling shares in the

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company, a complete scam. He
had no product. It was just some

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guy in his living room stealing the
money. But at the time it was

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novel. No one really you know. He was one of the first to

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realize, oh, I can use
the Internet to steal and that those cases

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grew and there were international Ponzi schemes
done entirely online. But at the time

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it was pretty novel to have a
scam that was run entirely over the internet.

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Wow. Yeah, And once again, maybe I was too young and

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I wasn't paying attention. But I
think we're seeing some of that now in

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crypto, and it seems it's just
human behavior playing out in different technology NASA

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classes, right, Bad actors will
try to exploit new technology, take advantage

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of people, and maybe there's a
bit more now with crypto because of the

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nature of tokens and you know,
being decentra well spread across the world.

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I should say now before we go
further, I have to ask you about

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your book. And I see that
you're very much into music. I am

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too, so I want to ask
you about your book and what what do

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you you know? Do you play
music? Do you just listen? You

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know? What are you doing on
that front? Yeah? I don't play

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well, I listen. I'm an
obsessive music fan. And after the SECA,

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I went back into private practice and
was working on the defense side.

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But after a few years ago as
that I was a little burned out,

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and I actually stopped practicing law about
five years ago. And in the back

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of my head it's like, well, I do a lot of writing in

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the law that I'd never written about
something that I personally find interesting, that's

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not professional, and I love music, so I thought it'd be fun to

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say, hey, can I actually
write a book about music? And you

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know, you know, I probably
sold two or three copies to friends and

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family, but it was it was
a fun thing to do, and it

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was a way of sharing my passion
and to use my writing and something I

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found a little bit more personally rewarding. That's awesome. Well, I'll be

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sure to link to your book on
Amazon in the description of a website and

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all that. Thanks. Okay,
So, Mark, there's a lot to

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talk about as it relates to crypto
and the SEC and overall government approach to

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crypto with all the noise aside,
I would love to get your thoughts on

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this technology. How how do you
see it? Do you see the potential

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applications? Do you see what cons
maybe that you may see on your end?

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Sure, and to be fair and
in full disclosure. Being at the

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SECA, I believe in full disclosure, I'm what you would call it cryptoskeptic.

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I know that's probably atypical for your
show, but I'm careful to delineate

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the technology from the investment the technology. I'm agnostic. I'm not a tech

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person. I'm any use tech.
I'm familiar with tech. I've done a

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lot of investigating tech and representing tech
on the outside. But I'm not an

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engineer. I'm not a computer software
programmer, so I don't think I have

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any business evaluating the tech anymore than
developers have a lot of say on security

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slaw. It's just it's not my
expertise. So when I talk about crypto

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and think about crypto, it may
very well be that there are use cases

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that there's a basis for the blockchain
to be the next great thing. I

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tend not to think so much about
that that's great. Let people develop that.

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I tend to look at it more
from an investment perspective, and that's

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when I put on both my sec
HAD and my defense counsel HAD. I

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represented some crypto firms when I went
back into private preser So I try to

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look at it kind of object to
the extent one can be objective about anything

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fairly objectively. And that's where my
skepticism and the alarm bells go off.

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In crypto as an asset class,
as an investment class, as opposed to

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as a technology got it so to
confirm your agnostic when it comes to the

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technology itself. Blockchain applications YadA YadA, right. But when it comes to

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the investment piece, that's where you
are more concerned about or have an opinion

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on exactly. And one way to
make it concrete. Take a company,

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say Rebel, and I have no
personal stake in that or you know bias.

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There's one thing to say, Okay, we're starting a company in this

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space, and we will go public
and sell stock and people can buy that

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stock if they believe in the company
based on the disclosures, and that's fine.

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That's that's the sort of decision one
can make. Then you get to

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okay, rather than selling stock in
a company subject to all the existing regulatory

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framework. Instead, we're going to
have tokens out there, and people can

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invest in tokens. That's different.
You know, you're not investing in it

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subject to all the usual disclosures.
That's where you have a whole new asset

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class where I do not think we
have the sort of protections and I think

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there's an awful lot of speculation and
outright fraud, not saying any particular company.

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So that's the delineation investing in a
company and their software versus investing in

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tokens, which I see as a
very high risk proposition, so I don't

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want to make sure I phrase this
correctly. So is your concern more on

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there is the lack of guardrails and
disclosures in place, or is it you

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don't believe the tokens as an asset
have value or is it a combination of

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both. To be fair, I
think it's a little both. I tend

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to think most tokens, you know, if there's a developed use case,

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maybe bitcoin has a developed use case, you can actually use it as a

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currency. In some spheres where there's
a use case, that's a little bit

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different. But I think for the
most part, most tokens really operate akin

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to a pyramid scheme, where the
only actual value to that token is finding

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another person who will then buy it
from you. You can't exchange it for

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anything, you can't use it for
anything. It doesn't have an inferent,

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any inherent value. The only reason
to buy it is you think you can

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sell it to someone for more money. That's not necessarily illegal, there's legal

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pyramid schemes, but I think it
operates like that. So that's my skepticism

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as to tokens as an asset.
Beyond that, there's also the disclosure aspect.

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Even if you take some legitimacy to
investing in tokens, what do you

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know about them? What do you
know about the issue, or what do

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you know about the basis to speculate
on them? And that's where I think

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there's more of a disclosure issue,
right And I agree with you when with

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the disclosure, I think that absolutely
needs to be in place. I think

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the guardrails. You know, Congress
is working on some bills to help resolve

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some of these issues. But with
the token standpoint, I wonder if we

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could we could talk a bit about
that. Look, we've seen technology,

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disruptive technology appear over time, right
throughout history, and at times it can

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be hard to accept that technology and
say, well, how is this going

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to work? What is it going
to what about these problems? And it

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opens up a bunch of challenges.
But what are your thoughts on these tokens

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exist to essentially grease the blockchains to
allow especially like public blockchains, to allow

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them to operate in the underlying movement
of value based on what use cases are

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in place, whether it's the tokenization
of assets or moving payments or whatever it

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may be. What are your thoughts
on that that you know that's while looks

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gonna be wrong. Mark. There
are tons of scams, a lot of

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blockchains that have no use cases,
of coins that have no use cases,

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but there are legit blockchains. Let's
say we take e theorem right, and

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proof of stake and the ability to
tokenize and do DeFi and all that.

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What are your thoughts on that.
Let's say we ignore the scans, say

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ether and with the ether token sure, And that's where it comes down to

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more of the disclosure issues. So
if we accept there are some sub category

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of tokens that have some legitimacy,
have some use, then we're falling back

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on more of a disclosure and that's
where again I look at that stock versus

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tokens issue you can have. We've
always had disruptive technology. So when I

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grew up at the SEC was the
beginnings of the Internet age. You were

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investing in highly speculative companies. Most
of the companies that went in public at

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the time have failed, but still
you were investing in a security, you

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were investing in stock. You had
companies that had disclosures, and you,

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as an investor could decide do I
want to take the risk? Do I

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understand the value proposition, Do I
understand what the financial model is and then

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you can evaluate that decide do I
want to invest in this disruptive technology that's

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missing in crypto. You don't have
crypto companies that are registering these tokens,

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and the SEC takes the position that
they are securities that need to be registered.

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So if you are buying ABC token, whether or not you believe in

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that technology and disruptive technology and so
forth, you really have no basis to

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evaluate what is the fair price for
this token and how do I think it

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fits into my investment strategy. There's
no disclosures. You don't have any the

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same sort of information about the issue
of that token, the market, the

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business plan, So it's just pure
gambling and that's where the disclosure prop What

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are your thoughts on and I think
you know Bill Hinman had spoken about this

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when he gave his speech about e
theorem. Hester person her safe harbor or

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proposal gave some thoughts on this that
unlike stocks and there are some attributes similar

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to stocks, these tokens are on
the blockchain but distributed globally, and initially

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they could start off in that securities
bucket, right because of the issuer,

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but over time evolve into being fully
decentralized. What the tokens are in different

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parts of the world, different developers
are building outside of the initial issuer.

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What are your thoughts on that?
And is that maybe the middle ground that

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the set will find with this technology
to say, hey, you need to

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come register. We need to have
the disclosures, but I need to we

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need that updated quarterly, monthly report
on where these tokens are going, who's

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using, what's happening, so that
we can see that you are not specifically

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pulling the strings here to centralized matter. Yeah, and your is what I

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think is the fundamental problem with crypto
from a regulatory standpoint. From the SEC

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standpoint, I think the SEC is
on pretty solid footing with the initial offerings.

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It's one most of its enforcement actions. Ripple was a mixed result,

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but for the most part it has
yet to lose a crypto enforcement action on

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the merits because I think the initial
offerings it's pretty clear, at least to

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me legally that these are securities offerings. Where it becomes much trickier and where

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I think the SEC may not get
where it wants to get is with the

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ongoing resale of these. So once
something is in the marketplace, if it's

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truly decentralized, who's going to file
a ten Q, who's going to file

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a ten K? There's no issuer
in charge? And that's where the existing

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securities law structure may not work.
So we may see with some of the

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cases, some of the exchange cases
in particular, where the current law may

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not be a good fit. And
that's where I think the SEC it seems

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optimistic it's filing these cases. I
think it may run into some trouble,

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and that's where I think there's going
to be a greater need, if not

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for SEC rulemaking, then for Congress
to intervene, because that's where the law

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is a little trickier. What grade, what letter grade would you give the

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current SEC under chair Gencer as far
as how they've been handling the look some

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people are saying they've gotten too political, right, and there's ties so Elizabeth

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Warren Vigery Gencer, But what grade
would you give the agency? Yeah,

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and I try to avoid some of
the criticism. When I was there,

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we were criticized by a lot of
people who didn't understand just how the agency

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works. I'm sympathetic to the uphill
battles they fight. It is a large

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slow bureaucracy, so anytime they're moving
into new space that moves quickly, the

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SEC fall short. That's just the
way it's always been, So you know,

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I can fault the agency for not
having moved quicker, both under the

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prior administration at the current administration and
letting some of these technologies, some of

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these tokens grow to a point where
it became harder to step in with enforcement.

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I tend to think the enforcement actions
they file have been legally sound.

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Again, with the exchange cases,
I think those are a little trickier,

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but there's a basis for it.
And if Congress is not going to step

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in and regulate, then I as
long as the SEC has a basis to

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say front laws being broken, they
need to step in and bring enforcement actions.

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So I don't fault them for that. I think, you know,

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how they've actually managed some of this
litigation has been problematic. I pure anecdotally,

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both from some of the companies have
been targeted by Wells notices and just

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friends who are still in the industry. That the way that the currentman istration

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has gone about its enforcement actions has
not been necessarily as fair as I liked

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to run things when I was in
charge of an office. So I think

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some of the tactics they're using I
challenge. But I do think at root,

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the enforcement actions have been sound to
date. You know again, I

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think that might change pretty soon.
Yeah, And I'm sympathetic to the SEC

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because I understand being in the industry
for a long time seen scammers and I'm

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like, this is where I need
the SEC to come in and, you

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know, stop these guys and so
forth. But to your point, I

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don't know where the SEC kind of
lost its way here with crypto and it's

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become this kind of pseudo political thing
and attacking a lot of good actors if

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you want to call them that.
And it's just let me, let me,

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let me jump in there on something, because that's something we hear a

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lot of. It's like, why
aren't they going after the frauds and the

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scams. Why are they going after
the good actors? And that's where one

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of the core issues is what do
you do about companies that have not committed

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fraud but aren't registering And the whole
purpose of registration, one of the fundamental

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concepts behind the securities laws that we've
had since nineteen thirty three. Is registering,

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is disclosure, is audits. These
are prophylactic measures. I mean,

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let's face it, if the SEC
waits for fraud, it will always be

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too late. The SEC is slow. Most people, when they are committing

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fraud do not take the money from
investors and save it for a college education.

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They blow it. It's gone.
So if the SEC were just to

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wait until there are reports of fraud, do an investigation, which is always

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going to be agonizingly slow. The
SEC is slow by design, that's not

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going to help people know. They
have to bring fraud enforcement actions after the

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fact so they can go after bad
actors, put them out of business,

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try to recover money where it's available, but usually that's too late. Registration

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is more of a profile active measures, like before a company is in a

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position to raise money and commit fraud, we are going to require them to

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bring in lawyers, auditors, make
disclosure to investors. That's why those laws

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exist. That's why the SEC,
I think, more recently, has focused

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on registration violations. So yeah,
we can fault them and say, why

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aren't you suing these obvious frauds instead
of going after legitimate actors. But we're

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assuming these are legitimate actors. The
whole point of registration is to ferret that

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out. So Mark. But here's
the thing. A lot of people are

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going to say, well, why
do they greenlight coinbase to go public and

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have Coinbase go through the whole process, jump through the hoops, and then

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come back and say, hey,
what are you doing? Here's a weald

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notice. Yeah. There's a couple
answer to that. One is, when

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the SEC allows a company to go
public, the SEC does not investigate the

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company. The SEC is not endorsing
their business or anything. The role of

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the SEC and companies go public is
basically employees in their corporation finance group are

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making sure you have made the required
disclosures. They're not evaluating is this a

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good company or bad company? And
obviously there's a lot of examples of bad

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companies that go public. So,
you know, simply as a legal matter,

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when the SEC says yeah, you
can go public, and then later

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investigates and finds violations of the law, they can sue the company they've allowed

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to go public. That happens all
the time, so there's nothing wrong with

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that. It's a little bit different
for Coinbase, because you know, their

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business is something that the SEC has
more visibility into or could because they're regulating

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the space. Some of that's going
to be let's step back and be a

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little more cynical about it. I
think at the time Coinbase when public,

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the SEC was not in the same
position. It's taken since of a more

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aggressive crackdown, So some of that
is just it's changed over time their view.

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We're now in a post FTX world. The SEC is taking a more

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aggressive position. Coinbase got caught in
the cross fire. But I still think

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you have to realize when companies go
public, that's not an endorsement. The

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SEC did not conduct an investigation like
it has since, So Mark stepping back

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from crypto, is that a fault
in the system that regardless of the crypto

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company or not, that probably they
should do some investigation because in hindsight,

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it just looks like, what are
you guys doing? Right? The perception,

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which is often reality for many people, is like, you guys dropped

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the ball here, right, But
maybe it's not baked into the process right

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now, but that needs to be
moving forward. What do you think about

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that? Well, if I were
to put on my defense counsel hat.

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I don't think any of my clients
who are in the industry, even outside

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of crypto, would have welcomed an
SEC that would conduct an investigation every time

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they wanted to public offer securities.
No company going public is going to say

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we are going to wait for a
two year SEC investigation of go public.

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So no, I think that's not
the way the system works. The system

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is designed so that there are certain
disclosures that are required, and those require

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the companies to bring in lawyers,
bring in auditors and accountants who will do

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that sort of vetting that the government
doesn't have the resources to do. And

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as long as those disclosures are made, then the company can go public.

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And then you know, you can't
prevent all the fraud in advance, you

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can at least have enough of the
disclosures there that investors and especially institutional investors,

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can then do their due diligence and
decide whether or not to invest in

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that company. I don't think it
would work to have a full SEC enforcement

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investigation of every company that wanted to
go public. There are not the resources

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for it, and the industry would
go the listing. No I would love

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to get your thoughts on the previous
administration Jake cla and Bill Hindman and how

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they handle crypto and specifically ETHEROREM.
Obviously, Bill Hinman gave a speech about

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ETHEROREM being sufficiently decentualized and not being
a security Now, obviously things have changed

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since then. ETHEROREM has moved from
proof of work to proof of steak and

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share. AGAINCER is not echoing those
statements at all. There's reports of consensus,

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the Ethereum Foundation getting notices from the
SEC and so forth. What are

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your thoughts on how that played out? And is this just, you know,

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something that has to be resolved by
Congress because even the SEC and different

336
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administrations are viewing this differently. Yeah, and again I try not to be

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outwardly critical of the agency because I
know what they're up against. I think

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at the time the SEC was focused
on icos outright fraud, and you know,

339
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if I were to fault them in
anything, I think they were fairly

340
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slow to respond to the large actors
out there who had large volume, but

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not necessarily the outward indis of fraud. They let that go for a while,

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with various repercussions in terms of not
doing something with Ethereum. I don't

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know the facts and whether or not
what the original offering involved was a violation

344
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of the law. I'm a little
dubious that there was complete compliance there,

345
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and I question why the SEC didn't
take a more aggressive stand. I get

346
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a little frustrated at the fact that
Ethereum was carved out as not being non

347
00:26:33.279 --> 00:26:37.279
compliant. That's not generally what the
SEC does. You know, maybe you

348
00:26:37.319 --> 00:26:41.599
can say about Bitcoin because it's it
was different, it was more advanced of

349
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the time. So it's a little
frustrating that the SEC was publicly making statements

350
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of a company it had not yet, to our knowledge, investigated. That's

351
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not generally how it's done. So
that now there is the caveat whenever there

352
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are public statements like that, and
people in cryptos say, oh, it's

353
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personal opinion, that's nonsense, But
that's how it works. I used to

354
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give speeches all the time at the
SEC, and I would give the same

355
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caveat. I would explain, here's
what's going on enforcement, here's some trends

356
00:27:10.720 --> 00:27:15.240
and priorities. But I always had
the caveat. I don't represent the Commission

357
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until by presidentially appointing commissioners have voted. This is just me as a senior

358
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officer speaking and you had that same
caveat there. So there's only so much

359
00:27:25.000 --> 00:27:29.160
you can do with that particular speech
that was made. That doesn't prevent the

360
00:27:29.240 --> 00:27:36.240
current SEC from diving in taking a
more focused investigate investigation and say, oh,

361
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now we're potentially finding violations and taking
action. They're not precluded from that.

362
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I realize it's frustrating when there's sort
of an inconsistency at the time.

363
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Yeah, and look, I didn't
agree with everything Jay Clayton did or said

364
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as it relates to crypto, but
it seemed they were him and Bill him

365
00:27:53.319 --> 00:27:56.880
and they were a bit more open
minded to try to work with the industry,

366
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to meet in the middle of the
road, so to speak, versus

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now. I mean, and once
again, I'm not trying to you know,

368
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get a quota a highlight that you're
bashing against her or whatever, but

369
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I'm just calling out how things have
been, you know, progressing over the

370
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timeline and now it seems like the
hammer is coming down on the industry and

371
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there's no room to even have a
discussion. And people have been complaining.

372
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They go into the SEC. They've
been trying to meet with them and then

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they get stabbed in the back.
So it's it's frustrating, I guess,

374
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and I hear from a lot of
entrepreneurs and innovators because who have been trying

375
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to work with the SEC. And
even Commissioner has the purse. I spoke

376
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to her last week in DC,
and I know her and Marque Wada have

377
00:28:44.599 --> 00:28:49.759
had a very different stance than Gary
Gainster and the Democrat commissioners. So there's

378
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some clear political party lines here as
well. And maybe this is a bigger

379
00:28:55.640 --> 00:28:57.839
symptomatic problem with government, right.
I don't know what your thoughts are on

380
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that. Yeah, I get the
frustration. So when I mentioned my discomfort

381
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with some of the tactical approaches,
that's that's part of it. Again.

382
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I know people who are still practicing
in the space, and certainly my practice

383
00:29:12.680 --> 00:29:15.599
when I was running an office is
if we're doing an investigation, you have

384
00:29:15.680 --> 00:29:22.240
those conversations, at least in the
wells phase, and you know it's supposed

385
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to be a give and take.
And I do understand that the current commission

386
00:29:25.279 --> 00:29:30.519
is really putting the hammer down and
there's much less room for that sort of

387
00:29:30.559 --> 00:29:34.519
discussion now. At the same time
the SEC has been badly burned. FTX

388
00:29:34.640 --> 00:29:38.880
is a good example. Now I
step back and say, that's one of

389
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those examples of crypto trying to have
it both ways. That you know,

390
00:29:42.880 --> 00:29:48.799
Crypto did not want to have exchanges
regulated or the assets regulated. So if

391
00:29:48.839 --> 00:29:55.119
you're an investor and saying I'm going
to buy tokens that are not registered with

392
00:29:55.200 --> 00:29:59.440
the SEC, and I'm going to
do so on an unregistered exchange in the

393
00:29:59.480 --> 00:30:03.519
Bahamas, and then if you circle
back and say why didn't the SEC protect

394
00:30:03.559 --> 00:30:04.920
me, I don't have a lot
of sympathies like you made a decision to

395
00:30:06.000 --> 00:30:11.000
avoid the SEC. But still the
reality is everyone then blames the SEC.

396
00:30:11.039 --> 00:30:15.759
Why didn't you do something about this
behaman company that's not your jurisdiction. So

397
00:30:15.880 --> 00:30:18.440
I think that's kind of forced the
SEC to say, fine, we're going

398
00:30:18.480 --> 00:30:21.599
to take a more aggressive approach.
If we're going to get blamed for everything

399
00:30:21.640 --> 00:30:26.559
anyway, let's put the hammer down. But yeah, I appreciate the frustration,

400
00:30:27.559 --> 00:30:30.400
you know, I think if the
SEC were being totally honest, here's

401
00:30:30.440 --> 00:30:33.880
my read on it. I think
the fact is they see and I agree

402
00:30:33.880 --> 00:30:38.480
with this what I was saying when
we first got started today. I think

403
00:30:38.519 --> 00:30:44.559
a lot of crypto is, if
not a scam, it's designed like a

404
00:30:44.559 --> 00:30:48.440
pyramid scheme. There is no basis
to make a reason decision to buy a

405
00:30:48.480 --> 00:30:52.960
particular token. The disclosures aren't there, the business model isn't there. So

406
00:30:53.200 --> 00:30:57.000
to tell the SEC you need to
be more open and create a way to

407
00:30:57.119 --> 00:31:02.680
register and a way to come in
and do this legitimately. It may just

408
00:31:02.720 --> 00:31:07.720
be the SEC saying we don't want
to create that path because people are going

409
00:31:07.799 --> 00:31:11.400
to lose their money. Why make
it easier. If Congress wants to make

410
00:31:11.440 --> 00:31:15.920
a path to have people put all
their money into doge coin, great,

411
00:31:15.000 --> 00:31:19.119
let Congress do that and deal with
the backlash. I think that's a lot

412
00:31:19.119 --> 00:31:22.359
of what's going on. They just
don't come out and say that. But

413
00:31:22.480 --> 00:31:27.119
Mark, I know. So here's
the thing. You made some comments like,

414
00:31:27.119 --> 00:31:30.680
Okay, a lot of this is
pyramid scheme and so forth. But

415
00:31:30.720 --> 00:31:37.200
then you got black Rock tokenizing on
etherorem, youve got City Bank and JP

416
00:31:37.279 --> 00:31:41.200
Morgan tokenizing on Avalanche. So let's
say you put it inside the doge coin

417
00:31:41.319 --> 00:31:45.279
and the cat coin and all that
nonsense. But like the actual enterprise layer

418
00:31:45.359 --> 00:31:49.160
one block chains out there, they
are getting real world adoption from institutions.

419
00:31:52.640 --> 00:31:56.799
Are you categorizing those into the pyramid
scheme and broad bucket or I want to

420
00:31:56.799 --> 00:32:02.839
make sure we delineating between doge coin
and etherorem for example, right, Yeah,

421
00:32:02.960 --> 00:32:07.359
I mean the fact that institutions are
getting into cryptos, well, there's

422
00:32:07.400 --> 00:32:10.880
money to be made, so that's
not surprising. That doesn't necessarily legitimize it.

423
00:32:12.359 --> 00:32:15.200
Let's face it, those same institutions
were propping up FTX, right,

424
00:32:15.279 --> 00:32:22.200
so I don't know that they necessarily
you know, there's money to be made,

425
00:32:22.480 --> 00:32:24.599
but yeah, I don't think it
changes the fact that when I say

426
00:32:25.039 --> 00:32:29.759
pyramid scheme, I'm thinking more of
the mechanics. That doesn't matter who's backing

427
00:32:29.799 --> 00:32:34.440
it. If the only way to
evaluate a particular token that you're investing in

428
00:32:34.799 --> 00:32:37.759
is I think somebody there's gonna be
a market for someone else to buy it.

429
00:32:37.799 --> 00:32:40.599
I don't know anything about its value, I don't know anything about its

430
00:32:40.640 --> 00:32:45.640
current use, about the financials backing
it, then yeah, you really are

431
00:32:45.680 --> 00:32:47.559
relying on sort of that. Well, at least there are people out there

432
00:32:47.599 --> 00:32:52.480
I can find to sell this to
in the future, so I don't think

433
00:32:52.559 --> 00:32:58.559
that's what prevents it from being pyramid
like, I think it gives legitimacy to

434
00:32:58.680 --> 00:33:01.119
the technology. And that's why I
start this by saying I see the value

435
00:33:01.160 --> 00:33:06.119
in the technology. I don't dispute
that, and let people develop that.

436
00:33:06.559 --> 00:33:08.640
I think the problem is right now, the only way to invest in it,

437
00:33:09.000 --> 00:33:13.880
at least for ordinary retail investors,
is to buy tokens where there is

438
00:33:13.920 --> 00:33:16.799
no basis to evaluate the value of
that tech. So Mark, I'm going

439
00:33:16.839 --> 00:33:22.640
to ask a very rookie question because
I want to. I know there's going

440
00:33:22.680 --> 00:33:27.279
to be a lot of people who
are still not clear about the security versus

441
00:33:27.319 --> 00:33:30.359
not security aspect and what that means. What are the implications. So let's

442
00:33:30.359 --> 00:33:37.279
say moving forward, everything outside of
bitcoin gets declared as a security. What

443
00:33:37.319 --> 00:33:40.599
does that mean for the tokens?
And what does that mean for retail investors

444
00:33:40.720 --> 00:33:45.960
who are buying these tokens, even
institutions that are buying the tokens. A

445
00:33:46.000 --> 00:33:51.839
few things. If you are buying
as part of the initial issuance, then

446
00:33:51.880 --> 00:33:55.759
you are going to have visibility into
the issuer of that point, what are

447
00:33:55.920 --> 00:34:00.400
their plans for the future, so
you can assess do I think think this

448
00:34:00.519 --> 00:34:05.880
token will have some value I can
quantify down the road because they'll have financial

449
00:34:05.920 --> 00:34:08.280
disclosures, they'll have business disclosures,
So some of it is up what do

450
00:34:08.280 --> 00:34:14.280
you know about the initial issuance.
The second part is if these are in

451
00:34:14.280 --> 00:34:17.280
fact securities, what does it mean
for the secondary market. And that's where,

452
00:34:17.599 --> 00:34:20.920
like I said, it gets a
little flaky. You know, in

453
00:34:20.960 --> 00:34:24.039
the abstract, it also means you
have protection because any exchange is going to

454
00:34:24.079 --> 00:34:30.519
be registered because they're trading securities,
which means there are going to be safeguards

455
00:34:30.559 --> 00:34:36.239
that we have for current exchanges.
The SEC and other regulators go and get

456
00:34:36.280 --> 00:34:42.400
to review their books and their practices
to make sure that their practices are sound,

457
00:34:42.480 --> 00:34:45.639
that you're not sending your money to
the Bahamas, and it goes into

458
00:34:45.760 --> 00:34:50.679
Samuel Bateman Freed's condom. So you
know, the secondary market, you'll get

459
00:34:50.719 --> 00:34:54.159
those protections. Now, where it
gets a little tricky is we've never really

460
00:34:54.239 --> 00:34:59.280
had a secondary market in this sort
of security. We've had secondary market and

461
00:34:59.320 --> 00:35:04.000
stocks so forth, where you have
an issue or with continued engagement. How

462
00:35:04.000 --> 00:35:07.119
do you have a secondary market of
a decentralized token where there is nobody to

463
00:35:07.199 --> 00:35:12.199
have those ongoing disclosures. Perhaps that's
where it's going to be a little bit

464
00:35:12.199 --> 00:35:15.719
different. That's where I think there
might need to be rulemaking or changes in

465
00:35:15.760 --> 00:35:22.760
the WAW and correct me if I'm
wrong here? Does that if something is

466
00:35:22.800 --> 00:35:28.559
ruled a security in certain aspects,
like for example, the initial issue once

467
00:35:28.679 --> 00:35:32.639
do you have? Does it put
up the accreditation laws? Where as a

468
00:35:32.679 --> 00:35:37.880
retail investor cannot go by five of
those tokens. I have to be an

469
00:35:37.880 --> 00:35:43.360
accredit investor if there were if it
were a private offering, yes, So

470
00:35:43.440 --> 00:35:47.920
if there's a private placement, then
there would need to be accreditation or some

471
00:35:49.559 --> 00:35:52.679
other exemption from the current securities laws. But there could also be a registered

472
00:35:52.719 --> 00:35:58.440
offering. So that's the point of
registration. So the equivalent of an IPO

473
00:35:58.719 --> 00:36:04.559
for a token. And again that's
that's where retail investors, through their advisors

474
00:36:04.639 --> 00:36:09.360
would have access to financial information where
they can make an informed decision. What

475
00:36:09.400 --> 00:36:14.480
are your thoughts on And we touched
a bit on it before. Where the

476
00:36:14.480 --> 00:36:17.519
blockchain is global, right, Anyone
from almost any part of the world they

477
00:36:17.559 --> 00:36:22.719
have Internet connection, can access these
tokens. Unlike stock markets and securities in

478
00:36:22.760 --> 00:36:27.239
certain markets where for example, India
may not be able to touch in your

479
00:36:27.360 --> 00:36:32.039
stock exchange and whatever's listed there.
The United States. Let's say it categorizes

480
00:36:32.280 --> 00:36:37.039
all coins outside of everything outside of
big cooin in securities. But in the

481
00:36:37.159 --> 00:36:40.840
EU, in the UK, and
Singapore, Japan they see them as virtual

482
00:36:40.880 --> 00:36:45.920
currencies. How does that you know, how does that on fold? And

483
00:36:45.960 --> 00:36:49.320
this is a hard question, but
what are your thoughts on that? And

484
00:36:49.559 --> 00:36:53.000
that dynamic? And only the United
States is viewing them as securities. Yeah,

485
00:36:53.000 --> 00:36:55.760
and that's where I have the luxury
of falling back on being an enforcement

486
00:36:55.840 --> 00:37:00.400
lawyer, so I don't have to
deal with these sort of regulatory schemes.

487
00:37:00.519 --> 00:37:05.119
I mean, that's obviously much more
complicated, and that's why maybe what you

488
00:37:05.239 --> 00:37:07.719
need is congressional intervention to decide how
are we going to deal with this.

489
00:37:08.119 --> 00:37:13.239
I still think if you are a
foreign issuer and you want to tap into

490
00:37:13.280 --> 00:37:17.000
the US markets, you comply with
US law. And I know that's frustrating

491
00:37:17.000 --> 00:37:21.480
for US investors who say, we
want access to things that are being sold

492
00:37:21.480 --> 00:37:24.519
offshore, but we can't because of
US law. But that's you know,

493
00:37:24.559 --> 00:37:28.440
we live in a democracy. The
law is the law. And I know

494
00:37:28.519 --> 00:37:31.119
cryptoics say, well, we don't
want protection, this isn't protecting us,

495
00:37:31.119 --> 00:37:36.480
but you have laws in place for
that purpose. I look at it this

496
00:37:36.519 --> 00:37:40.039
way. When I used to investigate
Ponzi schemes, the investors didn't want me

497
00:37:40.119 --> 00:37:44.519
protecting them either because they thought they'd
all get rich and then the sec came

498
00:37:44.559 --> 00:37:47.480
in and broke up. They're a
gravy train, which was nonsense because I

499
00:37:47.519 --> 00:37:51.800
had the financials and I knew their
money was being stolen. But still a

500
00:37:51.800 --> 00:37:54.039
lot of people don't want this sort
of protection. Well, the way we

501
00:37:54.119 --> 00:37:58.079
deal with it is you change the
law. But right now we have a

502
00:37:58.159 --> 00:38:02.519
legal regime in place that provides for
registration upfront of securities, that provides for

503
00:38:02.679 --> 00:38:07.760
an anti fraud compliance, and that
should apply to anything that is deemed to

504
00:38:07.760 --> 00:38:15.719
be a security, whether it's crypto
or stock. Question about the how we

505
00:38:15.920 --> 00:38:20.880
tests and what took place with Howie
that it was not so much the orange

506
00:38:20.920 --> 00:38:23.199
grows or the oranges, but was
the scheme to how we put together.

507
00:38:25.679 --> 00:38:30.079
We've had Chair Ganser and some folks
state that the tokens themselves are securities.

508
00:38:30.800 --> 00:38:35.039
Are you of that same mindset or
are you of the mindset of, Hey,

509
00:38:35.079 --> 00:38:39.599
it's not the oranges on that specific
tree on that grow, but rather

510
00:38:39.920 --> 00:38:44.599
it's the packaging. What are you
doing what type of product are you putting

511
00:38:44.639 --> 00:38:46.199
together What are your thoughts on that. Yeah, I'm not sure if they've

512
00:38:46.239 --> 00:38:50.320
come out and said that, because
that's not the way the law is set

513
00:38:50.400 --> 00:38:55.960
up. It's the investment contract for
some underlying asset where it gets really good.

514
00:38:57.000 --> 00:38:59.559
And this is one of those areas
where I think crypto is a little

515
00:38:59.599 --> 00:39:04.360
bit different from historical securities is we
can have that delineation that when you are

516
00:39:04.400 --> 00:39:07.800
buying a token, or more specifically, when you're selling a token, the

517
00:39:07.880 --> 00:39:14.639
securities you are selling the contract around
that, the securities nature of that,

518
00:39:15.119 --> 00:39:20.599
even if the token itself is something
different. We've never had investment contracts that

519
00:39:20.760 --> 00:39:23.960
had this sort of use basis.
Okay, if you are investing in the

520
00:39:24.000 --> 00:39:29.840
orange growth, there's no secondary market
for that investment contract. That's what's different

521
00:39:29.880 --> 00:39:34.159
about tokens. Right in theory,
you are buying a security, you are

522
00:39:34.199 --> 00:39:38.920
investing in whatever is being issued by
this issuer, but at the same time

523
00:39:38.960 --> 00:39:43.360
you also have something that you could
go and trade. There's actually a market

524
00:39:43.440 --> 00:39:47.440
for that token, and the securities
laws haven't grappled with that before. So

525
00:39:47.480 --> 00:39:52.639
that is novel, and that's why
I think the secondary market cases are going

526
00:39:52.679 --> 00:39:54.239
to be tougher. For the courts, and that's where you might need some

527
00:39:54.280 --> 00:40:02.199
congressional intervention because we've never had Again, most investment contracts historically have been scams.

528
00:40:02.880 --> 00:40:07.480
There's legitimate investment contracts, but most
of those that get to court are

529
00:40:07.519 --> 00:40:12.400
scams. There is no secondary market
for an investment contract in a posi scheme,

530
00:40:12.480 --> 00:40:14.239
right, there's not like, oh, I want to keep trading that.

531
00:40:15.119 --> 00:40:19.000
Tokens are different. There is a
secondary market for tokens. You can

532
00:40:19.159 --> 00:40:24.280
use them on the blockchain. That's
the securities law hasn't dealt with that scenario.

533
00:40:24.400 --> 00:40:29.519
So that's I think going to be
that's the novel twisters. Let's jump

534
00:40:29.559 --> 00:40:34.239
to this topic. And I don't
know if you've so tooken if you've taken

535
00:40:34.239 --> 00:40:37.800
a look at this, but air
drops the SEC has been saying free air

536
00:40:37.920 --> 00:40:43.719
drops could potentially be into securities bucket. What are your thoughts on that,

537
00:40:43.800 --> 00:40:46.320
even though I may not buy it, but I get air dropped it.

538
00:40:49.159 --> 00:40:54.239
Yeah, I'm not sure legally where
air drops stand because generally there has to

539
00:40:54.280 --> 00:40:59.519
be an investment of money that's part
of the test for security. One can

540
00:40:59.719 --> 00:41:05.679
look at some sort of exchange that
we're by taking these through an air drop.

541
00:41:05.719 --> 00:41:08.000
There is an expectation that I will
then create a market for it,

542
00:41:08.079 --> 00:41:12.960
So there is some sort of quid
pro quolt. So some legal argument could

543
00:41:13.000 --> 00:41:17.199
be made for that. It's hard
to bring a case against someone who's issuing

544
00:41:17.239 --> 00:41:22.519
exclusive exclusively through air drops because there's
no money to recover for the SEC.

545
00:41:23.079 --> 00:41:28.480
But if you're using that as a
mechanism for creating a market and then money

546
00:41:28.599 --> 00:41:30.880
is flowing in and out, I
could see why the SEC would want to

547
00:41:30.880 --> 00:41:37.320
take some action. Where it stands
legally, I'm not clear. Yeah,

548
00:41:37.360 --> 00:41:40.199
there's so many complications here. So
Mark, do you do you think that

549
00:41:42.199 --> 00:41:45.760
there's a new well, I should
say, an amendment that needs to be

550
00:41:45.800 --> 00:41:51.519
added to the how we test for
digital assets in crypto or an entirely new

551
00:41:51.960 --> 00:41:57.280
test for crypto and digital assets.
Well, it can be done in two

552
00:41:57.320 --> 00:42:00.360
ways. One is through the courts
so to the extent, and I don't

553
00:42:00.360 --> 00:42:05.599
think the original cases that we're dealing
with specific issue is we're going to grapple

554
00:42:05.599 --> 00:42:10.039
with that, but through crack in
coinbase unit swap. As you've got more

555
00:42:10.119 --> 00:42:15.280
exchange cases, the courts may develop
a test, you know, completely separate

556
00:42:15.280 --> 00:42:19.079
from how we They can say here's
how we are going to look at secondary

557
00:42:19.119 --> 00:42:22.639
market trading of digital assets. They
can come up with a new legal test

558
00:42:23.079 --> 00:42:29.239
based on existing law. That's one
way that it will develop. That takes

559
00:42:29.280 --> 00:42:32.079
time, That will happen over case
after case case. Law takes forever to

560
00:42:32.119 --> 00:42:37.239
develop. The other way is for
Congress or the SEC to pass a ruleral

561
00:42:37.320 --> 00:42:43.159
law. The current SEC administration has
not shown a whole lot of enthusiasm about

562
00:42:43.239 --> 00:42:45.360
promulgating regulations, so I don't think
it'll happen that way, and there's good

563
00:42:45.360 --> 00:42:49.400
reason for that. So ultimately,
I think it is going to fall on

564
00:42:49.440 --> 00:42:54.760
Congress. If Congress is feeling politically
that they need to support a crypto friendly

565
00:42:54.880 --> 00:43:00.400
system, then they will come up
with a different legal treatment of tokens in

566
00:43:00.440 --> 00:43:04.960
the secondary market then we currently have
when we deal with them as securities.

567
00:43:07.320 --> 00:43:12.199
What we see though with the different
court rulings right, for example, in

568
00:43:12.239 --> 00:43:15.400
the Ripple case, who so some
of the other judges have disagreed with Judge

569
00:43:15.400 --> 00:43:22.480
Taurus is ruling. Yeah, When
you have this dichotomy and thoughts and rulings

570
00:43:22.559 --> 00:43:25.719
up with the different circuits, do
you think, well, I guess Congress

571
00:43:25.719 --> 00:43:29.039
could resolve this, but do you
think any of this makes it up to

572
00:43:29.079 --> 00:43:34.679
the Supreme Court. It could it'll
be some time, you know. Historically,

573
00:43:34.920 --> 00:43:37.960
obviously, after the initial trial ruling
goes up to a Court of Appeals,

574
00:43:39.239 --> 00:43:44.519
the Supreme Court doesn't necessarily take that
first case up. You know,

575
00:43:44.639 --> 00:43:47.159
even if you get a second circuit
ruling in Ripple, if that's the first

576
00:43:47.199 --> 00:43:51.719
one to hit the Court of Appeals
the Supreme Court, I don't know if

577
00:43:51.760 --> 00:43:53.519
they would find this the sort of
thing that's worth their attention. They take

578
00:43:53.519 --> 00:43:58.679
a very small number of cases each
year. Generally, the law develops because

579
00:43:58.719 --> 00:44:01.840
you'll have two Court of a Field
decisions and they're in conflict, and then

580
00:44:01.920 --> 00:44:06.239
the Supreme Court might step in and
say, okay, now we've got inconsistent

581
00:44:06.280 --> 00:44:09.320
appellate rulings we need to resolve,
and that can take years to happen.

582
00:44:09.840 --> 00:44:15.760
Now, because this is something new
and novel, maybe this court gets interested

583
00:44:15.840 --> 00:44:19.280
sooner, but likely it's going to
take some time, and that's frustrating,

584
00:44:19.360 --> 00:44:23.000
especially when you have new technology that's
evolving quickly. A lot of dollars are

585
00:44:23.039 --> 00:44:29.599
out there in the interim. So
that's where I think there's some incentive for

586
00:44:29.679 --> 00:44:34.039
Congress. Not that this Congress is
able to do anything terribly effectively, but

587
00:44:34.239 --> 00:44:37.599
there is some incentive for Congress to
step in because waiting for the courts and

588
00:44:37.679 --> 00:44:42.159
certainly it's Supreme Court to develop the
law is something that could take a great

589
00:44:42.199 --> 00:44:45.840
deal of time. I want to
circle back to the SEC and how they've

590
00:44:45.840 --> 00:44:50.719
been handling things, and I want
to get your perspective as you work at

591
00:44:50.719 --> 00:44:52.760
the SEC. And I want to
make sure I preface this question by saying,

592
00:44:52.800 --> 00:44:58.880
well, human beings do bad things, good things, and nobody's perfect

593
00:44:58.960 --> 00:45:04.559
right. We can't control every situation
or scenario. However, the SEC has

594
00:45:04.599 --> 00:45:07.599
been getting dinged in court recently.
They got called arbitrary and capricious with the

595
00:45:07.639 --> 00:45:12.719
bigcoins body TF situation in a debt
box case. They were lying to the

596
00:45:12.760 --> 00:45:15.760
courts, they got sanctioned. What
are your thoughts on this? And is

597
00:45:15.760 --> 00:45:20.079
that just part of the course in
any company, in any agency, just

598
00:45:20.280 --> 00:45:23.280
there's going to be people doing bad
things and who may now follow Chairgainther's orders

599
00:45:23.360 --> 00:45:27.679
or whatever it may be. Or
is this an outlier? Is this unique?

600
00:45:27.840 --> 00:45:31.079
Have you seen something like this before? Let's put it this way,

601
00:45:31.119 --> 00:45:36.400
that you're going to have good and
bad lawyers on both sides all the time.

602
00:45:37.280 --> 00:45:39.320
When I was at the SEC,
I thought I had an amazing office

603
00:45:39.360 --> 00:45:44.960
follow really tremendously talented people, but
there'd be some things that happen at the

604
00:45:45.000 --> 00:45:47.960
agency that I wasn't I don't think
across ethical lines or legal lines, but

605
00:45:50.119 --> 00:45:52.960
some practices that I wouldn't have necessarily
done. When I pivoted back into the

606
00:45:52.960 --> 00:45:59.119
private sector and I spent another half
dozen years representing companies who are under SEC

607
00:45:59.159 --> 00:46:04.320
investigation, I faced SEC lawyers,
so I thought, we're upstanding and ethical,

608
00:46:04.360 --> 00:46:07.280
and even if they were going after
my clients, I understood why in

609
00:46:07.320 --> 00:46:10.000
the basis for doing so. And
I saw some who I found frustrating,

610
00:46:10.000 --> 00:46:15.719
whose practices I disagreed with and I
didn't think were appropriate. That's that's going

611
00:46:15.760 --> 00:46:21.559
to happen. It's a large entity. There's thousands of lawyers, political leadership

612
00:46:21.599 --> 00:46:24.519
that can be disconnected. So I
don't know that there's anything unique. I

613
00:46:24.559 --> 00:46:30.119
do think in the current environment,
I think there's been a high pressure valve

614
00:46:30.199 --> 00:46:35.280
from the top down. You know, again, some of these tactical issues

615
00:46:35.320 --> 00:46:40.840
in the way that the current administration
is running things may contribute to some carelessness

616
00:46:40.880 --> 00:46:45.199
at the staff level, at the
enforcement staff level that I find frustrating.

617
00:46:45.519 --> 00:46:52.480
I think it's been you mentioned politicized. I'm not sure if i'd say politicized,

618
00:46:52.480 --> 00:46:54.559
because I don't really understand the politics
of crypto. I don't think it

619
00:46:54.639 --> 00:47:00.239
falls down traditional political lines. I
don't know that there's necessarily political gain to

620
00:47:00.360 --> 00:47:06.920
anybody in being particularly aggressive in crypto. I'm not sure that's politically even a

621
00:47:07.000 --> 00:47:12.679
good idea. I think for the
agency and certainly for Gary Gosseler, seeing

622
00:47:14.159 --> 00:47:17.519
the problems that are arising in the
crypto industry, making a decision we need

623
00:47:17.559 --> 00:47:22.880
to clamp down. If we don't, and that we continue to have Celsius

624
00:47:22.880 --> 00:47:27.079
and FTX and Luna and so forth, we will get the blame. Congress

625
00:47:27.119 --> 00:47:30.400
isn't stepping in the CFTC isn't necessarily
stepping in. We need to do something.

626
00:47:30.440 --> 00:47:35.519
I understand that. I don't think
that's political so much as pragmatic.

627
00:47:36.400 --> 00:47:38.320
But I do think that sort of
top down we are going to take a

628
00:47:38.360 --> 00:47:43.880
more aggressive approach has filtered down to
the staff level in a few cases.

629
00:47:43.960 --> 00:47:47.800
I don't think that's the norm.
I don't see the SEC, you know,

630
00:47:49.039 --> 00:47:52.000
being unethical as some people claim,
or crossing these legal lines. I

631
00:47:52.079 --> 00:47:57.960
think, unfortunately, there have been
some outlier incidents well I'm going to disagree

632
00:47:57.920 --> 00:48:02.679
with you on the political aspect because
I don't know and this this is not

633
00:48:05.440 --> 00:48:09.800
sometimes it's the narrative carried by someone
with a loud voice like Elizabeth Warren.

634
00:48:12.159 --> 00:48:15.920
I'm gonna create the anti crypto army
and working closely togainst her and sending against

635
00:48:15.920 --> 00:48:21.800
her questions and answers ahead of hearing
and just all these things. And it's

636
00:48:21.840 --> 00:48:23.440
like, wait, what's going on
here? And then you see with the

637
00:48:23.519 --> 00:48:29.320
bitcoin spotty TF after the courts rule, the SEC acted arbitrary and capricious,

638
00:48:30.079 --> 00:48:34.400
hester Purse marcu Wade at both the
Republicans, Gainscer sided with them. He

639
00:48:34.519 --> 00:48:37.559
was the third vote to get this
through, but two Democratic commissioners said no.

640
00:48:38.440 --> 00:48:43.400
So it just seems like and not
necessarily that they're like, I'm a

641
00:48:43.440 --> 00:48:45.480
Democrat and I hate crypto, but
oh, I'm gonna side with Elizabeth Warren

642
00:48:45.519 --> 00:48:49.480
because she got the lawyer, she
has the power on the Biden administration and

643
00:48:50.159 --> 00:48:53.199
the loudest voice right now. And
then the game of politics, I'm trying

644
00:48:53.199 --> 00:48:57.599
to get re elected. I want
campaign donations. I want to side against

645
00:48:57.679 --> 00:49:00.679
someone who has such a loud voice. I think this bit of that and

646
00:49:00.960 --> 00:49:05.000
I know. I spoken to Congressman
Tom Emmer, and he introduced a bill

647
00:49:05.079 --> 00:49:09.039
called a Restructuring SEC Act to make
the set less political where there's an executive

648
00:49:09.079 --> 00:49:14.440
director and there's another commissioner's seat.
If I'm not mistaken, but it will

649
00:49:15.599 --> 00:49:19.119
allow things to be less politically influenced. I don't know if you've seen that

650
00:49:19.239 --> 00:49:22.159
or heard of that, but there
just seems to be some political layer here.

651
00:49:23.239 --> 00:49:27.639
Yeah, and that's not my experience, and obviously I'm not privity to

652
00:49:27.960 --> 00:49:32.320
the relationships and what's going on right
now. First of all, stepping back,

653
00:49:32.760 --> 00:49:37.400
the SEC historically has been very rarely
politicized, especially in an enforcement you

654
00:49:37.440 --> 00:49:40.840
know, in my experience again,
I was there sixteen years. I saw

655
00:49:40.960 --> 00:49:46.679
cases all the time. Almost every
case enforcement action is approved five. Oh

656
00:49:47.280 --> 00:49:51.159
okay, it doesn't mean, you
know, it's not a politic Investigations and

657
00:49:51.239 --> 00:49:54.280
enforcement are not political. Crypto is
a little bit different. Crypto is that

658
00:49:54.440 --> 00:49:59.920
rare exception where you are seeing three
two votes on most things. That's I'm

659
00:50:00.159 --> 00:50:05.760
usual, And again I don't know
so much about certain people responding to politics.

660
00:50:05.800 --> 00:50:08.920
I do think historically there are people
who are more pro or anti regulation

661
00:50:09.840 --> 00:50:14.039
and commissioner peers I knew when she
was on the staff. You know,

662
00:50:14.199 --> 00:50:17.039
she was a counselor to a commissioner
that I had to work with, and

663
00:50:17.159 --> 00:50:22.280
she has a very different view of
regulation than some of the others. Mark,

664
00:50:22.320 --> 00:50:25.199
you eight, I knew as well, and I think all of these

665
00:50:25.199 --> 00:50:31.960
people are respectable, very smartpath they
have different views about how regulation should work.

666
00:50:32.159 --> 00:50:37.480
And now that we have crypto stepping
into what's arguably a less regulated space,

667
00:50:37.559 --> 00:50:42.440
it's novel we don't have the lay
of the law down again, especially

668
00:50:42.440 --> 00:50:45.239
for secondary market trading, then it
does fall back on what do you view

669
00:50:45.280 --> 00:50:51.360
about how actively we should regulate?
And there are political difference, is differences

670
00:50:51.400 --> 00:50:54.679
about how heavily this space should be
regulated. I don't know if it's so

671
00:50:54.800 --> 00:50:59.400
much like, well, we're Democrats, we're anti crypto, We're Republicans were

672
00:50:59.400 --> 00:51:02.360
pro crypto. I think it's more
fundamentally, what do we think about an

673
00:51:02.400 --> 00:51:10.559
active regulator in this space? And
certainly commissioners you Ada and peers are much

674
00:51:10.599 --> 00:51:17.280
more hostile to regulation. Hard question
for you, Mark, if you were

675
00:51:17.440 --> 00:51:22.239
the chair of the SEC today,
what would be your next steps to help

676
00:51:22.320 --> 00:51:30.239
figure this out and to try to
work with the industry, protect investors.

677
00:51:30.960 --> 00:51:32.480
You know, like you said,
have the disclosures, the guardrails in places,

678
00:51:32.599 --> 00:51:37.639
what would be your plan of action? Yeah, and some of it.

679
00:51:37.679 --> 00:51:40.960
As we're frustrated with the tactics of
the current administration. I certainly think

680
00:51:40.960 --> 00:51:45.119
they need to be a little bit
more open. I think it has to

681
00:51:45.119 --> 00:51:47.800
be depersonalized. You know, that's
one thing that frustrates me, the fact

682
00:51:47.840 --> 00:51:53.760
that everybody can name this chairman.
I served under probably six or seven chairs,

683
00:51:53.800 --> 00:51:58.239
and I don't think anybody could name
any of them who wasn't in the

684
00:51:58.280 --> 00:52:02.400
securities industry. You know, the
Commission acted, even where it was a

685
00:52:02.400 --> 00:52:07.760
divided commission on certain things, the
Commission acted. And I think this particular

686
00:52:07.880 --> 00:52:14.559
leadership is much more makes videos,
I think that and that allowed I think

687
00:52:14.639 --> 00:52:17.880
that opens up avenues for attack.
It just seems like this is one particular

688
00:52:19.119 --> 00:52:23.920
individual who's vindictive, and I think
that's unfortunate because it should be this is

689
00:52:23.960 --> 00:52:30.320
the agency, and any enforcement action
that's brought, for example, that's not

690
00:52:30.679 --> 00:52:36.719
the chair. An enforcement action is
two years of investigation by career staff who

691
00:52:36.760 --> 00:52:39.760
are not political, who can only
act if they think they've got the evidence

692
00:52:39.800 --> 00:52:44.239
to bring a case. And some
of the finest securities lawyers in the country

693
00:52:44.480 --> 00:52:50.280
go to work for the SEC.
These are smart people. Multiple bodies between

694
00:52:50.400 --> 00:52:54.239
the enforcement staff and the commission vote
to review what they're doing. Five commissioners

695
00:52:54.320 --> 00:52:59.559
voting. This is not you know, some one person acting and a whim.

696
00:53:00.239 --> 00:53:01.760
I think you need to get back
to that and that gives I think

697
00:53:01.800 --> 00:53:07.400
that would show the legitimacy that this
is an entire agency even if you've got

698
00:53:07.400 --> 00:53:12.800
divided voice votes from the top,
that has done investigation, has found violations

699
00:53:12.840 --> 00:53:15.000
of the law, and believes that
there's a good faith lawsuit to be brought.

700
00:53:15.039 --> 00:53:17.880
That's the way it should work.
So I'd want to make sure that

701
00:53:17.880 --> 00:53:22.039
that focus is there. But I
do think there needs to be a little

702
00:53:22.079 --> 00:53:25.440
bit more clarity. I do disagree
with those who say the SEC there's no

703
00:53:25.519 --> 00:53:32.320
clarity here. The SEC has brought
countless enforcement actions. There There is no

704
00:53:32.599 --> 00:53:36.880
defense lawyer out there who is saying, I don't know what the law is.

705
00:53:36.920 --> 00:53:38.960
So you know what the laws,
you may disagree with it, and

706
00:53:39.000 --> 00:53:44.199
there's complexities when we get to the
secondary market where we don't have the case

707
00:53:44.280 --> 00:53:46.599
law. But to say there's no
clarity here, we don't know what's going

708
00:53:46.639 --> 00:53:51.320
on, the SEC neate needs to
tell us more. I don't really buy

709
00:53:51.360 --> 00:53:53.920
that. Okay, the cases are
out there, we know where the SEC

710
00:53:53.960 --> 00:54:00.039
stands, even if we disagree with
the positions they're taking. It serve I

711
00:54:00.079 --> 00:54:07.280
appreciate that. Do you see this
being resolved maybe in the next year with

712
00:54:07.800 --> 00:54:10.800
let's say the House gets something past
tomorrow, Senate will need to do their

713
00:54:10.920 --> 00:54:14.960
thing, and it look it's an
election year. I don't know Biden's days

714
00:54:15.039 --> 00:54:20.800
or he goes, but nevertheless,
it seems Democrats and Republicans are working together,

715
00:54:21.239 --> 00:54:23.079
you know, like recently they repealed
SAB one two one that still has

716
00:54:23.119 --> 00:54:29.320
to go to the President, of
course, But do you think this gets

717
00:54:29.400 --> 00:54:32.559
resolved by next year? I think
that's optimistic because I think a lot of

718
00:54:32.599 --> 00:54:37.159
the issues do have to be worked
out in the courts. So whether we

719
00:54:37.280 --> 00:54:40.880
forget about any legislation that's pending and
just say look at what's in the courts,

720
00:54:40.920 --> 00:54:44.719
that's going to take some time to
work out and to come up with

721
00:54:44.760 --> 00:54:49.320
new parameters for how crypto has dealt
with as a security or not. If

722
00:54:49.360 --> 00:54:53.039
there is legislation, I can't predict
which laws pass and what they do.

723
00:54:53.119 --> 00:54:59.119
I think if more of the responsibility
is offloaded to the CFCC, which is

724
00:54:59.119 --> 00:55:02.719
far less aggressive than the SEC,
doesn't have the same resources. That's going

725
00:55:02.760 --> 00:55:07.199
to cut back on what the SEC
is doing. If there is an outright

726
00:55:07.719 --> 00:55:15.239
carving out of crypto from securities regulation
or creating a path to regulation different from

727
00:55:15.239 --> 00:55:19.800
what exists, yeah, that could
certainly change things. I don't know how

728
00:55:19.840 --> 00:55:22.920
much of that's going to happen,
how much political will there is for that

729
00:55:22.039 --> 00:55:27.679
to happen. Again, circling back, and this is my skepticism. I

730
00:55:27.719 --> 00:55:30.519
think we are in an area that's
very high risk, that is still fraught

731
00:55:30.559 --> 00:55:37.000
with fraud or non disclosure. And
does Congress, does the President want to

732
00:55:37.119 --> 00:55:40.239
sign a law that clears a path
when in the future then people can blame

733
00:55:40.320 --> 00:55:44.920
them for the next blow up rather
than the SEC. I don't know if

734
00:55:44.960 --> 00:55:47.880
the political will is there for that. If so, sure we can have

735
00:55:47.920 --> 00:55:55.119
a whole new regulatory system framework set
up for crypto. The other thing to

736
00:55:55.159 --> 00:56:00.239
think about is historically Congress has not
really done much to that. Congress creates

737
00:56:00.280 --> 00:56:06.800
the broad law and then it still
has to be handled by the SEC or

738
00:56:06.880 --> 00:56:10.320
the CFTC at a regulatory level.
Congress is not going to create a registration

739
00:56:10.480 --> 00:56:15.440
framework. It could say here's the
general, but it's going to rely on

740
00:56:15.440 --> 00:56:20.480
on agency rule making. That's going
to be litigated because anytime the SEC or

741
00:56:20.519 --> 00:56:23.880
the CFTC passes a rule, they'll
get sued by the industry that'll take laws

742
00:56:23.920 --> 00:56:28.039
and the courtbvill appeals and say yeah, they're arbitrary and capricious and throw it

743
00:56:28.079 --> 00:56:31.480
all out and they start out.
Congress doesn't end things by passing a law.

744
00:56:31.599 --> 00:56:36.480
So I think this is a long
haul, by which time, hopefully

745
00:56:36.519 --> 00:56:39.519
a lot of the bad players in
crypto are out and maybe then we're dealing

746
00:56:39.519 --> 00:56:45.599
with a smaller market where it works
a little bit more collaboratively, for sure.

747
00:56:45.239 --> 00:56:49.719
Appreciate your insights, Mark, I
got some wrap up questions here.

748
00:56:50.480 --> 00:56:54.280
First, if you could create your
own metaverse, will the theme be you

749
00:56:54.320 --> 00:56:58.519
know, I thought about that.
There are a lot of things I would

750
00:56:58.599 --> 00:57:00.880
change, but that would get me
to a very big political discussion here,

751
00:57:00.880 --> 00:57:05.239
so setting that aside, you know, I've got you know, I would

752
00:57:05.280 --> 00:57:07.360
have a much more musical world.
I would like to DJ for the world

753
00:57:07.400 --> 00:57:10.800
and get people exposed to the sort
of music I love. That that's my

754
00:57:12.000 --> 00:57:15.800
universe. I think, you know, there's a lot of really serious issues

755
00:57:15.800 --> 00:57:21.800
in the world. There's financial issues
and social issues, but music makes it

756
00:57:21.840 --> 00:57:25.239
all a little bit better. Hmmm. I agree with you on that rapid

757
00:57:25.239 --> 00:57:32.280
fire questions. Favorite food I have. I'm not a healthy eater, tries

758
00:57:32.360 --> 00:57:36.960
my wife crazy. I would eat
pizza every meal, and I grew up

759
00:57:36.960 --> 00:57:38.760
in Chicago. I could do pizza
and burgers, and I feel very guilty

760
00:57:38.800 --> 00:57:44.960
about it, but I I like
the unhealthy stuff. Favorite. Well,

761
00:57:45.320 --> 00:57:46.840
this will be a good one to
ask you a favorite musician or band.

762
00:57:49.679 --> 00:57:52.599
Uh. You know, I always
say favorite band other than the Beatles because

763
00:57:52.599 --> 00:57:58.079
the Beatles. Nothing is like the
Beatles, and that changes day to day.

764
00:57:58.280 --> 00:58:01.760
I'm I I like to evangelized for
Big Star, which is the greatest

765
00:58:01.760 --> 00:58:07.960
power pop outfit ever and one of
the great loss bands that were around for

766
00:58:07.239 --> 00:58:09.880
just a few years. No one
ever heard of them until decades later,

767
00:58:09.960 --> 00:58:14.519
and I think Big Star is the
band that everyone should be listening to all

768
00:58:14.559 --> 00:58:16.480
the time. I'll have to check
them out because I have not heard about

769
00:58:16.480 --> 00:58:20.760
them before, but I'll check them
out of if it is favorite movie.

770
00:58:22.000 --> 00:58:25.079
I like gangster movies. You know. I don't know what that says about

771
00:58:25.079 --> 00:58:30.159
me, but I tend to look
at Chicago. Maybe in Chicago, but

772
00:58:30.239 --> 00:58:32.440
you know, the Godfather, Goodfellas
in pulp fiction, that's sort of the

773
00:58:32.480 --> 00:58:38.320
holy Triumviria for me. Yeah,
I've watched Godfather and good Fellows too many

774
00:58:38.320 --> 00:58:43.199
times, and I would admit my
wife said, why are you watching it?

775
00:58:43.280 --> 00:58:45.239
Haven't seen this a thousand times?
And you know it's just if it

776
00:58:45.280 --> 00:58:49.880
comes on cable, I'm out for
the next three hours. I'm nothing I

777
00:58:49.880 --> 00:58:53.960
can do. I'm going to watch
it. Yeah, favorite book, favorite

778
00:58:53.960 --> 00:58:58.320
book. I don't read as much
fiction as I used to. I wish

779
00:58:58.360 --> 00:59:01.599
I did. I tend to like
strange and creative fiction that goes in weird

780
00:59:01.639 --> 00:59:07.679
directions. I'm a big fan of
Cloud Antlast by David Mitchell, which kind

781
00:59:07.719 --> 00:59:10.760
of really plays with the whole model
of what a novel could or couldn't look

782
00:59:10.880 --> 00:59:15.639
like. Pallid Fire by nabokovs another
one. I like things that play with

783
00:59:15.239 --> 00:59:20.119
the structure. Now, I think
I know the answer to this question,

784
00:59:20.159 --> 00:59:22.840
but'll just confirm. What are you
doing when you're not teaching? What are

785
00:59:22.840 --> 00:59:29.119
you doing for fun? Well?
My wife and I are are suburban middle

786
00:59:29.159 --> 00:59:34.360
aged retirees, which means we play
pickleball because where we leve, pickleball is

787
00:59:34.440 --> 00:59:37.280
mandatory. If you're in your fifties
or sixties. That's what we play a

788
00:59:37.320 --> 00:59:42.519
lot of pickleball. We've got the
luxury of living in the most beautiful part

789
00:59:42.519 --> 00:59:44.719
of the country, so I take
my bike out. We go on a

790
00:59:44.719 --> 00:59:49.719
lot of hikes. Between our kids
growing up and moving out and COVID,

791
00:59:50.280 --> 00:59:52.719
we discovered the San Francisco Bay Area
in a way that we never had a

792
00:59:52.800 --> 00:59:55.000
chance to see when we were working
all the time. And our kids are

793
00:59:55.000 --> 00:59:59.840
growing up, so you know,
that's a big part of our lives is

794
00:59:59.880 --> 01:00:05.360
just being outdoors these days. Mark
absolute pleasure chatting with you. I really

795
01:00:05.360 --> 01:00:08.320
appreciate your insights, even though I
don't agree with everything. Yeah, it's

796
01:00:08.320 --> 01:00:13.800
no fun if we agree and and
and you know my metaverse people I think

797
01:00:13.840 --> 01:00:17.280
would have reasonable disagreements. It's you
know, being a law school instructor as

798
01:00:17.320 --> 01:00:21.760
well. That's that's how we learn, is to have disagreements. And I've

799
01:00:21.840 --> 01:00:25.039
I've learned a lot from from crypto
folks. I I have never bought crypto.

800
01:00:27.480 --> 01:00:30.719
I have a lot of concerns about
it, but I've learned about it

801
01:00:30.760 --> 01:00:35.920
from from people I disagree with the
family. That's vehemently that's how discussions should

802
01:00:35.920 --> 01:00:47.320
work. Should work, so thanks
to absolutely thank you Mark