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CNBC Transcript: SEC Chair Gary Gensler Speaks with CNBC’s Andrew Ross Sorkin on “Squawk Box” Today

WHEN: Today, Thursday, July 21, 2022

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC interview with SEC Chair Gary Gensler on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Thursday, July 21st. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2022/07/21/sec-chair-gary-gensler-on-crypto-im-neutral-on-the-technology-but-not-on-investor-protections.html.

All references must be sourced to CNBC.

ANDREW ROSS SORKIN: Welcome back to "Squawk Box" this morning. We're gonna get right to our next next big guest of the hour here to talk crypto volatility, a new push in regulate stable coins, ESG and we're gonna go broad. We got a lot of questions to talk about. We're joined this morning by SEC Chair, Gary Gensler Gary, it's great to see you. We appreciate you being with us. Help us with this just because we have been talking about ESG all week and we had your former your your former person in this same role Jay Clayton on actually talking about ESG issues and the disclosure rules that you're putting in place and he seemed to believe I think and I don't want to speak for him, but to suggest that some of the rules of the road that we're going down which you've been promulgating may be leading us away from some of the national security issues that we should be pursuing or at least not thinking about them in a balanced way. What do you think of that?

GARY GENSLER: Look Andrew, so good to be with you. It's, it's the long tradition of the Securities and Exchange Commission to help investors get their disclosure and so what we've proposed and we've got thousands of public comments on this is a rule to bring some consistency, comparability to what's already happening. Hundreds, if not thousands of companies around the globe, are disclosing things about climate risk, how they manage it, and their greenhouse gas emissions, but it's fragmented. And so, it's it's bringing some consistency to that data standardization I might might think of it in that way. So with all respect to my predecessor, we're not a merit based regulator. He might be suggesting something other than we are. We are a disclosure-based authority and trying to bring some consistency to disclosure and that investors get to decide.

SORKIN: Related to that, though, is is another issue that a number of frankly Republicans have been pushing this including Tom Cotton, who came on our air just last week, a lot of folks upset about what they think of as the power of some of the biggest, the biggest investors in the world, or at least those that control lots of shares, and I'm talking about BlackRock and the like, and they say these guys are too woke and they're pushing an agenda and they have too much power. What do you think of that?

GENSLER: Well, look, I, investors get to decide whether they're small or large investors, what matters to them and how they're managing under their various fiduciary obligations and the like to get returns for their clients. But I would say this, we have seen increasing concentration in our markets and its concentration in the asset management area, which you just mentioned, a handful of firms have a lot concentration there. We see greater concentration in market making in the way that the equity markets work. And this is the nature of our modern economy, and at the Securities and Exchange Commission. we're constantly think of how we can help protect and promote competition because that's good for investors.

SORKIN: But do you believe that the largest asset managers, especially those who control what might otherwise be described as passive shares, should be using their influence to the extent that they have influence to vote those shares differently than active managers might?

GENSLER: Well, again, it's up to them how they do the work for their ultimate clients, the investors and so I'm sorry, because it really is. It's part of their fiduciary roles as I understand those responsibilities that voting on a stock merger or a board of directors or on a proxy vote is part of that duty if that helps maximize their—

SORKIN: But just to be clear, then you believe that they actually have that duty. So there's a philosophical distinction, some people say that actually these passive shares either shouldn't be voted or actually should be just voted to mimic effectively what active, what active managers are doing because they're passive to begin with. You're saying that's not the case.

GENSLER: Andrew, it's not it's not just me. It's various pronouncements that predate me from from both lawyers and the courts and so forth that an ability to vote is part of the value proposition and it was true in the 1930s. It's true now Congress is something about proxy voting and whether you're voting on a merger, the board of directors or on other issues, it's it's part of the mix of what an investment advisor does.

SORKIN: Chair, Chair Gensler, you just mentioned Congress and maybe that's a nice way to segue into this topic because we keep talking about Congress and stock trading. Nancy Pelosi, of course, or her husband I should say, trading in Nvidia recently. You care deeply I believe, and part of your mandate is to deal with the credibility of the markets. Clearly this undermines the credibility of the markets to see folks in Congress trading back and forth we're talking about it, people are raising questions. Is there something that you can be doing?

GENSLER: Well, I leave those decisions to Congress, but we we are I agree with you that markets are based on trust. Finance broadly as based on trust and whether regular investors feel they're getting a fair shake, and they have these similar opportunities to the largest investors. We do have a role in terms of something Congress passed many years ago called the STOCK Act and we do play a role along with the Department of Justice, and this is about how members actually may trade in the markets.

SORKIN: But you don't have a view as the lead overseer of the stock markets about folks in Congress trading? You just said you're gonna leave it, leave it to Congress, you must have a personal view or a view as as the ultimate regulator over this over the exchanges.

GENSLER: Andrew, I know you've got a role to play but I've also got a role to play to to help lead and guide this remarkable agency overseeing $100 trillion capital markets and it's about trust and finance. And that's why over decades, we have insider trading laws to ensure that insiders not be able to trade on material nonpublic information. We help also oversee laws that Congress passes about their own members. I leave it to Congress, if they're going to change those laws for their own members.

SORKIN: Chair Gensler but in fairness, your budget is controlled by Congress. Is that, is that a fair way to describe why you don't have a view?

GENSLER: No Andrew, it's just that I have a respect for Congress. We're going to enforce the laws that are in place. There's, there's really important laws about not treading on material nonpublic information and that's in place and we do our best with with regard to our limited resources that were appropriated and we also do what we're supposed to do in enforcing the laws around something called the STOCK Act.

SORKIN: Separately we want to talk to you about crypto because we've seen crypto carnage across the board. Celsius is an example being sued now, allegations of inflating its price, et cetera. You obviously just had a settlement with BlockFi. What's the next step and are we going to just be seeing a sort of a litany of these type of settlements and deals?

GENSLER: Look, you're focusing on what's called crypto lending when when the public is lending their assets to a financial institution and that financial institution is trying to make some spreads or and so forth and we have focused on this area because many of these firms like BlockFi that settle may well be investment companies taking hundreds of thousands or millions of customers bonds, pulling it together and then relending it. It sounds a little like an investment company, or a bank you might say, and some of these are offering pretty high returns, 4%, 8% 10% returns and how how are they doing that. What stands behind those promises and so, we're going to continue to try to work with the industry, get these firms properly registered under the securities laws and protect the public.

SORKIN: Talking about protecting the public, as you know, Fidelity plans to offer Bitcoin as an option for corporate sponsors effectively so their employees can get access to it. You think that's a good idea?

GENSLER: Again, it's it's up to them what would be a good idea to make sure that any large institution works with the Securities and Exchange Commission, works with their sister agency, the Commodity Futures Trading Commission, I was proud to chair that agency once as well. Our two market regulators have a lot of tools to protect the public. That's what's most important. We have time tested tools and laws about trading securities in the marketplace. Many of these underlying tokens have the attributes of securities and so the only question is how to get them inside of this investor protection remit and then the public has more confidence.

SORKIN: But let me ask you personally then as as a former professor and teacher about the world of crypto, do you think that these should be in 401k plans? Do you think that should be part of everybody's portfolio?

GENSLER: Look Andrew, thank you for mentioning. I was honored to teach up at MIT and do what I did. I'm neutral about the technology but I'm not neutral about the investor protection. These are a highly speculative asset class. There's thousands of tokens, most of which have attributes of securities, meaning there's a group of sponsors and entrepreneurs raising money from the public. And I would say this that just like any field of venture capital and new projects, many projects fail. You look at the statistics, in fact, most new ventures fail, and it's important that the public get the disclosure, understand the risks. There's very significant risk in this field.

SORKIN: Right. And Chair Gensler, before you go as you know, probably one of the hottest topics at least in the business world among the business press has been following the the Twitter fight with Elon Musk, which has now gone to court in Delaware. Of course, one of the things that Elon Musk has done both on Twitter and elsewhere is effectively called for an investigation into Twitter's description of how much spam and how many bots are on the system. Are you looking at that? Can you tell us about that and do you think that Twitter shareholders should know where the SEC stands on that?

GENSLER: So I'm going to speak directly to your viewers and say as chair of a civil law enforcement agency, maybe the nation's largest, we we bring around 700 enforcement actions a year, you hopefully understand why I would not speak about any one matter that a really talented journalist like Andrew might ask me about. So Andrew, I'm gonna pass on on that matter.

SORKIN: But I guess the question is, is there a point at which if you investigated it and you felt comfortable that the language was okay, that you would say it's okay or you would say it's not okay. And are we, and where would we be in that process if there was a process?

GENSLER: I like your hypothetical but I'm going to shy away from your hypothetical Andrew, but we at the agency, I'm so proud of this agency, our cop on the beat, we follow the facts and the law where they take us and without fear or favor bring cases where we think appropriate, where we don't think appropriate, we don't reveal to the public if we've if we've looked at something that's not what you would expect from the Department of Justice. It's not what you have from the SEC. We only speak publicly when we actually the facts and the law present itself in a way that we take somebody to court or we settle something.

SORKIN: Chair Gensler, a lot of people are gonna take a lot away from that, maybe on both sides depending on which side they support. We appreciate seeing you of course and your perspective on all of this is hugely helpful to the conversation and to our—

GENSLER: Thank you so much. You be well.

SORKIN: You bet.