Watch CNBC’s tubby interview with SEC Chair Gary Gensler

Join us right now on the set for the first time to talk about Bitcoin and a lot more is SEC chair Gary genser good morning good morning good to be with you so it's a it's a month later and I think we're all curious about how you think this is going uh not just in terms of what's happened to the price but in terms of what you think is happening.

Inside this market and and and whether you think it's quote unquote working well look we V we focus on investor protection and of course the issuers raising money so this product we've had similar products in gold and silver ETFs you call them they're technically exchange traded products um and uh we approved a group of about 11 at one time.

This was not the first way you could buy uh or Express a risk in Bitcoin um but as we like to say we're Merit neutral uh this was not in any way like an approval of Bitcoin that existed it's just how to trade it in these exchange traded products um we've had uh both a futures-based ether and Bitcoin ETF uh you know before and I'm curious.

Sort of how you think that this is going to impact the price of these things given that by the way interestingly was it pomp who was just on Anthony Pompano was just on earlier this weekend was saying that so few Bitcoins are actually moving and what we should think of that and Merit NE think it's a little less than neutral uh Mr.

Chairman it almost was we called it grudgingly uh when you finally got from from the court case sort of forced in is it really just neutral or or wasn't there a little bit of a we're not sure about this thing and let me say it this way we're Merit neutral if somebody's complying with the laws okay so if they're giving full fair and truthful.

Disclosures to the American public who gets to decide on their Investments but you're so smart you're at MIT and people listen to your what you think about Bitcoin and it is troublesome to some to me if I if I look at it and I see all the merits of it and someone that taught about it and understands it seems to have an opinion that maybe it's I don't.

Know pet rockish or something I get your I get your words about pet rocks and so forth but I think we also have an investor education responsibility at the SEC particularly about those uh Investments that are non-compliant with either the securi laws or Commodities laws and so forth so here we have an asset class all.

Of these 15 20,000 crypto tokens y many of which without prejudging anyone many of which are actually something called investment contracts or Securities and the platforms upon which you trade the intermediaries they're not like in this building NASDAQ that's that that has protections and against fraud manipulation and the like um just seen.

People lose their shirt on with NASDAQ you can lose because there's risk there's risk in Investments but what we try to do as a society is take some of the fraud and manipulation risk out of the markets by regulation is is that the problem though it's not necessarily Bitcoin Bitcoin the underlying asset but more the froth and the potential for.

Frauders to use it that has been well this is a field Becky that's been uh rif with fraud and manipulation and look at all the bankruptcies and you've you've had on this set people talking about those various bankruptcies and it's not just one entity it's entity after entity after entity and then investors are just lining up in the bankruptcy.

Court what do you make of this goes to the underlying piece of this you've heard uh Jamie Diamond say that he would close it down that basically Bitcoin you've seen the comments right it's not just that he closed down that he would say it's you know used by drug dealers and used by folks who are doing all sorts of illicit and Terrible Things.

There's very few things that trade today that people talk about like that now there are obviously frauds and things that happen but maybe not like this like the dollar is like a 100 times more I I know that's your perspective but I'm just I'm curious how you think about that that's true though this is how much is been money laundered with Bitcoin.

This is how much this is Bitcoin this is do this is dollar yes Jo I look here's the Jamie Diamond quote the only true use case for it is for criminals drug traffickers money laundering and tax avoid I know but we have a guess opion we have a guess Joe what what what is your opinion and what is your opinion that we have something trading on the.

Exchange for the public that has this type of use case at least as as described by the president one of the leading Market the it's the leading market share in ransomware uh and that's publicly known you know it's the it's the the token of choice for ransomware Joe if I can say the US dollar the Euro the Yen you have.

The whole uh Society using it as a medium of exchange we buy our cups of coffee as I see here um we get paid in dollars or Yen or Euro and you have a whole Central Bank and and support for one currency generally per economic uh region that we don't have here so there's a very real economic difference which is part of part of the attraction.

Since it's decentralized and then and you can't have you can't have a proplate central bank it's not that decentralized j i I know you're saying because of the ETFs but but but really it isal because look how Finance tends towards centralization since Antiquity so what do we have we have a handful of three to six core so-called crypto but.

The asset itself the way that you know the the that's how theer how The Ledger and now how many times do you have people on this show that say I want to invest in something because how the books and records are kept I mean Joe really it's just an accounting Ledger a clever everyone has that everyone has.

And can't be double counted it it's it's almost immutable that's that's why people think it has inent Val trust it more than an Oracle database or you trust it more TR more than a the the Bitcoin Bulls say they trusted a lot more than than the central bank that that enables the the fiscal authorities to spend money to the tune of $33.

Trillion that's that's everybody's investment choice but and then I think about how many things can be used in a delerious way of course but that doesn't that has nothing to do with the underlying thing that you're using itself I mean I can go run a car into a parade and and run over you know 40 people doesn't mean like we shouldn't.

Have cars does it no no no you you should have cars I wasn't going to use guns cuz God I don't want to trigger so to speak anyone on the set but but but when the use case of a particular thing that you're buying and selling as an investment is just speculative investment how many of the 90% of the people that own Bitcoin are using it for.

Ransomware for there must be well there must be another use case that makes it so attractive to so many people speculative investing right speculative investing that's what okay let me ask a separate question which is just to Pivot this because I think the next sort of order event question is what happens to ethereum for those in the crypto World.

They all want to know how you're thinking about that and really if ethereum is a security you know how does that analysis differ from how you would think about Bitcoin I I what we did in January was cabin to one set of filings we have other filings you're absolutely right uh in front of us but I'm I'm not going to prejudge it for you or the.

Audience that's something that a five member commission uh discusses and right RS let me ask you a different question which has to do with indexing so much of our Market is focused on indexes and you focus historically or at least the sec's historically focused on individual Securities right individual companies in the like I'm curious whether you think.

That the system as it is today is working in the right way meaning a lot of the valuations today you could ascribe to the fact to the fact that certain Securities are in certain indexes it relate it relates to what's happening to bitcoin by the way so it's a great Innovation going back decades.

Ago Jack Bogle and as you know you probably interviewed him when he was still alive uh invented this idea that you could democratize finance that rather than than buying individual stocks you can buy the basket uh why buy the needle and you can buy the Hy stack he would say and so it was very cost efficient and it's a way the American.

Public can uh really participate in the stock market at very low cost it's also led to some concentration some centralization in finance because when you look at the large index providers if you're in the index or not in the index it can be very these days it's a handful but the other piece of is these days it's a handful of stocks.

Which often represent a majority of the entire index re re individual Valu the reason you're looking for the needle in the hay stack is to find the needle to get rid of all the hay I mean who wants a hay stack that makes that makes no sense well but actually Economist Joe I mean you know this I've studied it but I thought about it it's like no but.

They've studied it that you get the benefit of divers and Vanguard 500 gues Vanguard doesn't have a Bitcoin right that's they don't they didn't Vanguard is not doing it yet the only ones really only of the biggies that didn't do it correct yeah I don't think Vanguard actually well they're not they were not they did not submit an application right.

Exactly do you expect if we're all sitting here at this table together in a year from now that this dozen or so approved ETFs that there's only like two or three gets even more concentrated or do you think that there's going to be you know dozens of these things that's really up to the market to decide but what what you saw when this happened is.

Fees came down dramatically there was a bit of a investors benefited because there was a bit of a competition there investors also benefited from better disclosure because they they they have to do things called registering with the Securities and Exchange Commission on those products and investors got the benefit of any surveillance by the.

Various stock exchanges um but again these are highly speculative risky Assets in which to invest um let me pivot again to a a big headline uh that happened actually last night we just talked to the COO of the company I don't know if you were watching cyft just moments ago uh that stock popped in this remarkable way in part because in the.

Press release they had an extra zero um on uh their margin for the quarter what is the C think about something like that is that something where you would find a company for that kind of mistake um is that something where you say that's part of the business obviously investors who bought on that it might have been algorithmic.

Trading I want to actually talk to you about the impact of that as well I think it's a responsibility of companies to ensure that they put out information in the public that's accurate um and I don't I can't speak to that one matter I don't even uh you're telling me something I learned about a half an hour ago um but in general companies are.

Supposed to put out accurate information to the public but when when they don't if it's an accident let's say it's an accident corre immediately let's say a correction happens immediately we can take lift out of this I'll I'll say that the uh the the sorc and quick uh kernin and Co we we accidentally put out a especially Kern especially we put out a.

A press release accidentally with some misinformation we corrected it within 10 minutes it was uh clearly not intentional on our behalf or on our part um are is somebody from the SEC calling us today and saying hey guys we got a problem we're going to have to send you a f like what is it what is the how does the SEC think about these things let me.

See if I can just generalize and pivot to artificial intelligence I gave a talk yesterday up at Yale about this and so it's sort of like what is the liability or responsibility somebody using an AI model and the AI model might hallucinate right and and look we really don't want our advisers hallucinating on mushrooms and you don't really want your advisers.

To hallucinate with AI there's still a responsibility to uh ensure that you have accurate information that you're putting out and and with the use of AI um that you have certain guard rails in place especially if you knowingly know that it might hallucinate or know that it might front run in a market I mean that's an interesting idea this.

Morning I was looking at it in the the the it was algorithmic trading that bought into this most humans didn't react fastly enough or quickly wouldn't have reacted quickly enough if you had a human eye checking it over you might not have thought it was rational to have a 500 in basis point increase in your in your projections for your margins and.

And Becky I think uh and again stepping aside from that one event last night I really just learned about it but whether it's a mistake or whether it's intentional because also you could have people trying to defraud the market by putting out fake news releases sure and and you know so bad actors have a new tool to try to defraud the market.

And that it's to protect the public from that how much empathy do you have or sympathy do you have for Al algorithmic trading though I mean if it's well it's a tool it's existed algorithmic trading has existed for decades it's getting faster less less latency and it's also getting more sophisticated the math is getting more sophisticated and so if.

You're deploying a model you want to make sure that the model has certain guard rails really to protect your bottom line and to protect the market let me ask you about another big topic that we've been talking about for the past week and a half now which is uh the ruling in the Tesla case around governance and the compensation that.

Elon Musk was paid and I'm curious about it because part of the ruling goes at the idea that the board of Tesla was quote unquote not independent even though that these these quote unquote independent directors were supposedly independent that they weren't and that they therefore did not negotiate in good faith and that when they then endorsed.

This compensation agreement the shareholders effectively I think the Judge would say I don't know if she would use this word were effectively defrauded um and therefore voted with with misinformation what say you because you I I will I think part of it is all of these companies are trying to comply.

With the rules around independent directors Etc and where's the SEC play in this so it's the matter you're talked about I'm not going to speak about but generally those matters are a matter of state law and State corporate governance the SEC has some role with regard to corporate governance about the disclosures around executive.

Compensation the disclosures about uh the controls of the company and and the like uh but th those matters that you're speaking about really are generally a matter of state law but to a large degree that case was about defrauding investors shareholders that I would assume come under the purview of the SEC and whether they're being provided with.

The right information because underneath this entire case is this idea that these directors are they're telling the public that they're independent but in fact that they're not and is the SEC supposed to step in in those roles and say you know here's a problem here again I hope that public understands that it's the chair of a law enforcement agency I'm.

Not going to speak about any one circumstance one company and and and certainly other people's cases in state courts but yes you're right the Securities and Exchange Commission is a disclosure-based uh uh regulatory agency and it's about ensuring that the information is accurate material information right.

There's not omissions and then we protect the public against against fraud manipulation whether it's in in these Securities or it's in yes Joe crypto Securities okay I got a more complicated one for you and I don't know the truth of the matter but there have been lots of reports mostly in the Wall Street Journal uh suggesting that Elon Musk is.

Taking uh illicit drugs I don't know if this is right or wrong or otherwise the question I have though is the SEC supposed to look at this is somebody supposed to look at this is someone not supposed to look at is the board supposed to look at this what how would you think about I no I I I'm serious you you you run you run this.

Governing body over over investors and I think there are some investors who are trying to understand what they're supposed to think of these articles look again step I I understand you have a role to play as a a very talented on air Financial uh journalist I've got a role to play that's also chairing a law enforcement agency I so I right respect.

I'm not going to be pulled into that but we are disclosure-based that companies discuss their material risks uh that that investors get to decide based on those material risks whether they want to invest in that company or sell the stock should companies that have CEOs that use illicit drugs include include this in some kind of warning no I I I'm.

Just asking the question privacy issue you know how many drunk there are get in the morning I'm not here to to I'm not sure the stories are even all of Silicon Valley is experimenting with hallucina you should have maybe at some point I probably I'm not kidding you get to know yourself it might help my ability you mentioned hallucination it's.

I'm going to come back to artificial intelligence it makes it easier but like if a company is using artificial intelligence in a material way it's really about the bottom line their prospects and the like and that that program has a tendency to hallucinate they have to consider those risk and whether it's a material risk to invest.

Can I just say the last time I heard you kind of come back to an issue that you were very centrally focused on was crypto so this sounds to me like you are issuing a message the reason you're here today to talk about this is you want to issue a message to any company that is going to engage with artificial intelligence that they will be held.

Responsible for any problems with that AI well it in two ways Becky it's in if you're an investment advisor giving advice to the public or you're a broker dealer using it uh to remember you still have a responsibility to put your investors ahead of the advisor or the broker dealer so that's that's a conflict issue but also if you're using.

It that you still have responsibilities not to defraud the public and so that's about sort of having some guard rails let's make sure you don't front run meaning taking Investor's uh uh choice to buy or sell a stock and try to get ahead of them put your interest ahead of them and so forth so uh yes I do think that that's.

Important because we regardless of the tool you use whether you use a hammer whether you use just a little bit of algebra or you use artificial intelligence but it's not okay to blame a dumb AI program that that did something we weren't anticipating that's right you don't you don't blame a dumb Hammer if you're using that to defraud.

Somebody I'm just trying to say hey is a tool but when you use that tool to do bad things oh my God now ai it's okay for a AI but not Bitcoin well how do you see them no I'm just saying you'd say it's it's a tool but if you use it to do nefarious things then it but it's then you're saying it's not ai's fault well it's the same case.

You just made the same case for Bitcoin with with bitcoin's a non-security but if it's if if now you're splitting hairs again no no I'm not Joe and for every Jamie Diamond I can raise you one Paul Tor Jones one hold on one Larry one Stan rck Miller one I mean I'll raise you all Peter teal Mark Andre they don't run the SEC I think we've established that Joe.

Is not Merit neutral sh gansler they're playing the music but I do have to ask you one other question which has to do with ESG there's been a remarkable backlash on it even a backlash around disclosures around climate and some of these other metrics that you've been talking about.

And I'm curious how you think about that cuz you're seeing it from different states and and investors Pension funds and the like and it's become political Andrew if you look at the top thousand companies sort of the Russell 1,000 about 90% of them are already talking about climate risk somewhere in their uh annual filings a little over half are.

Already disclosing something around their emissions greenhouse gas emissions I think there in lies a role for the SEC to help bring cons consistency comparability in that decision usefulness but we are not a climate regulator we are not a climate risk regulator we're a Securities regulator right but there are some companies now.

That are scared to disclose some of their their pledges or other things because if they do which you would say they should no no no no I do not we we just say then then they're saying that certain States Texas Florida and others are going to say you can't do business in our state or we're not going to invest in you or what have you there are.

Many companies already making their just disclosures and if they material you have to make sure that they're accurate and they're not misleading that that's that's the same role as whether it's about the executives and it's the same thing if about these risk if they're material okay this has been fabulous come on back to the table again it's.

Great to see you in person good to be than you much Ganer thank you squawkbox coming right back

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