March 02, 2021

At Banking Hearing, SEC Nominee Gensler Commits to Efforts Recommended by Warren to Protect Investors and Make Markets More Honest and Transparent

Video of Hearing Exchange (Youtube)

Washington, DC - In a Senate Banking Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) questioned the U.S. Securities and Exchange Commission (SEC) Nominee, Gary Gensler who serves as a Professor of Practice at MIT Sloan School of Management, about market manipulation and whether he'll use the tools available to the SEC to improve market function and capital formation.

In response to Senator Warren, Mr. Gensler committed to "looking at all of the authorities" to make the markets more honest and more transparent, including through climate risk disclosure, greater transparency around private equity business practices, and limiting the use of forced arbitration by broker-dealers when it comes to protecting investors.

U.S. Senate Committee on Banking, Housing and Urban Affairs
Tuesday, March 2, 2021

Senator Elizabeth Warren: Thank you, Mr. Chairman. And welcome, Mr. Gensler. I remember your work at the CFTC, and I anticipate that you will show the same independence and courage as head of the SEC.

So, as you know, the SEC's job is to "protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation," but it is falling down on the job. And so, since we're limited for time, I'm just going to pick three examples. The SEC is not requiring companies to make full public disclosure about climate-related risks. The SEC is letting companies leave their investors in the dark about predatory private equity practices. And as GameStop recently demonstrated, the SEC stands by while the stock market too often functions like a casino where the roulette tables aren't on the level.

So let me go back through this. Let me start with climate risk. 

Mr. Gensler, is there any reason why companies should be able to hide their climate risks from their investors? 

Mr. Gary Gensler: Senator, no. I think that particularly material -- materiality is a point here -- but no, they should not be able to hide their risks.

Senator Warren: Okay. Good. Now, let me go to private equity.

Mr. Gensler, is there any reason why a company that rakes in millions and millions of dollars from buying up small businesses and closing them down shouldn't have to disclose their general practices to their investors?

Mr. Gensler: I think it's at the heart of the Investment Advisers Act that they would share their fees and any conflicts with their investors.

Senator Warren: Well, their fees, and I presume the overall business model. The approach they're using. Is that right?

Mr. Gensler: Yea. A description of their business model to their investors. Their limited partners, usually, in that case. 

Senator Warren: Okay. And then finally, let me ask about the tilted roulette tables on Wall Street. If someone has been cheated by a broker dealer, hypothetically, for example, if Robinhood cheated individual investors, hypothetically, should that company be able to use forced arbitration clauses to avoid getting sued and held accountable? 

Mr. Gensler: I think, Senator, that while arbitration has its place, I think it's also important that investors, or in that case, customers have an avenue to redress their claims in the courts. 

Senator Warren: Good. You know. As you know, the SEC has the power to require disclosures that will be helpful to the investing public-like climate risk disclosures and private equity practices. And Section 921 of the Dodd-Frank Act gives the SEC the authority to prohibit the use of forced arbitration by broker-dealers when it is "in the public interest and for the protection of investors."

In other words, there we go. 

[Sirens wailing in the background.]

In other words, the SEC has the tools to make the markets function better. So, if you are confirmed, Mr. Gensler, will you commit to picking up those tools and using them to make the markets more honest and more transparent?

Mr. Gensler: Senator, if confirmed, I look forward to looking at all of the authorities. Not just this one. But all of the authorities to help protect investors, promote the capital formation and the efficient markets that we talked about. And this is an important authority that was vested in the agency and looking at the economic analysis, working with fellow commissioners. I think we should look at all the authorities.

Senator Warren: I appreciate that. You know. Congress has given the tools to the SEC. We just need the SEC to pick up these tools and use them. The SEC has been asleep on the job for long enough. It's time for the Commission to get off its behind and protect investors and consumers and I expect to see progress on all of these areas under your leadership.

So, thank you for being here and thank you for your willingness to serve.

Thank you, Mr. Chairman.