Crypto Critics' Corner

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Episode 161 – Is there one good regulator between the SEC and the CFTC? (feat. Sean Tuffy)

Is there one good regulator between the SEC and the CFTC? (feat. Sean Tuffy) – Crypto Critics' Corner

Bennett Tomlin and Cas Piancey are joined by Sean Tuffy to discuss the theoretical basis of merging the SEC and the CFTC. Sean's BlueskyAdditional episodes mentioned in this episode: Episode 39 – Fuck the SEC, all my friends hate the SECEpisode 157 – Donald Trump, Justin Sun, and the grifts we missedEpisode 158 – How Tether avoids prosecution with this one simple hackEpisode 159 – What Donald Trump’s election means for Bitcoin (feat. Joseph Politano)This episode was recorded on December 2nd, 2024.

Cas Piancey and Bennett Tomlin are joined by Sean Tuffy to discuss the possibility of merging the SEC and the CFTC.

This podcast was recorded on December 2nd, 2024.

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English Transcript:

00:00:05:07 - 00:00:06:11
Cas Piancey
Welcome back everyone. I

00:00:06:11 - 00:00:11:22
Cas Piancey
am Cas Piancey. I'm joined, as usual, by my partner in crime, Mr. Bennett Tomlin. How are you today?

00:00:11:22 - 00:00:13:10
Bennett Tomlin
I'm doing well. How are you Cas?

00:00:13:10 - 00:00:13:22
Cas Piancey
I'm doing great.

00:00:13:22 - 00:00:17:16
Cas Piancey
We have a special guest today. Sean Tuffy, regulatory consultant.

00:00:17:16 - 00:00:18:11
Cas Piancey
Specialist.

00:00:18:11 - 00:00:19:16
Cas Piancey
How are you, Sean?

00:00:19:16 - 00:00:20:21
Sean Tuffy
Doing good. Thanks for having me.

00:00:20:21 - 00:00:22:03
Cas Piancey
It's awesome to have you on.

00:00:22:03 - 00:00:23:06
Cas Piancey
We've we've.

00:00:23:06 - 00:00:24:21
Cas Piancey
Really only done one full.

00:00:24:21 - 00:00:29:04
Cas Piancey
Episode about the SEC, the Securities.

00:00:29:04 - 00:00:30:08
Cas Piancey
And Exchange Commission.

00:00:30:08 - 00:00:31:06
Cas Piancey
And we.

00:00:31:06 - 00:00:39:16
Cas Piancey
More or less said the the title is provocative. The title is, fuck the SEC. All my friends hate the SEC, but.

00:00:39:18 - 00:00:39:23
Cas Piancey
In.

00:00:39:23 - 00:00:41:23
Cas Piancey
Reality, our argument was that they're caught.

00:00:41:23 - 00:00:42:23
Cas Piancey
Between a rock and a.

00:00:42:23 - 00:00:45:15
Cas Piancey
Hard place, that either they're.

00:00:45:15 - 00:00:46:22
Cas Piancey
Regulating too much and everyone.

00:00:46:22 - 00:00:48:07
Cas Piancey
Hates them, or they're not regulating.

00:00:48:07 - 00:00:50:03
Cas Piancey
Regulating at all. And everyone hates them.

00:00:50:03 - 00:00:51:13
Cas Piancey
But today we're going to.

00:00:51:13 - 00:00:52:22
Cas Piancey
Talk about the idea.

00:00:52:22 - 00:00:53:22
Cas Piancey
Of merging.

00:00:53:22 - 00:00:57:05
Cas Piancey
The SEC and the CFTC,

00:00:57:05 - 00:00:58:07
Cas Piancey
commodities futures.

00:00:58:07 - 00:00:59:06
Cas Piancey
Trading Commission.

00:00:59:08 - 00:01:03:15
Cas Piancey
They were established significantly later than the SEC.

00:01:03:17 - 00:01:05:01
Cas Piancey
Can you talk about the difference between.

00:01:05:01 - 00:01:06:10
Cas Piancey
The SEC and the CFTC?

00:01:06:10 - 00:01:30:08
Sean Tuffy
Yeah, sure. So you're right. Everyone tends to think of. Because most of the financial regulation in the US happened in the 30s into the early 40s. And so everyone tends to think that's when everything was created. But the CFTC doesn't come along. And to the, to the mid early to mid 70s. And so when the CFTC does separate from the SEC is it it it regulates sort of commodities and futures trading which

00:01:30:08 - 00:01:32:22
Sean Tuffy
in its original origin is all agriculture based.

00:01:32:22 - 00:01:45:14
Sean Tuffy
So that's really the CFTC origin story. Whereas the SEC does, you know, all securities markets, secondary markets that we know and love, stocks, exchanges, mutual funds, asset managers and you all that

00:01:45:14 - 00:01:49:13
Sean Tuffy
where CFTC is was originally much more narrowly defined to sort of commodities

00:01:49:13 - 00:01:53:01
Cas Piancey
Y to to start off with the, I guess maybe a.

00:01:53:01 - 00:01:54:02
Cas Piancey
Simpleton question here.

00:01:54:06 - 00:01:58:09
Cas Piancey
Why would it take 40 years later.

00:01:58:09 - 00:02:03:19
Cas Piancey
For for a regulatory agency to start looking into, into these markets?

00:02:03:19 - 00:02:04:20
Cas Piancey
from the SEC being.

00:02:04:20 - 00:02:08:13
Cas Piancey
Established to look to like to regulate, regulate second.

00:02:08:13 - 00:02:10:08
Cas Piancey
To secondary markets. And then.

00:02:10:08 - 00:02:15:06
Cas Piancey
The CFTC being established 40 years later to, to to look at these.

00:02:15:06 - 00:02:16:06
Cas Piancey
You know, more.

00:02:16:06 - 00:02:20:17
Cas Piancey
Physical based agriculture markets. Like why wouldn't this year. It almost is like.

00:02:20:17 - 00:02:21:12
Cas Piancey
Counterintuitive.

00:02:21:12 - 00:02:25:04
Cas Piancey
Like why wouldn't the CFTC be established much earlier than the SEC.

00:02:25:04 - 00:02:33:00
Sean Tuffy
Right. So I guess I'd say that's a little misleading of my my heart. So there wasn't a regulatory agency ahead of the CFTC. So it was the CEA looked after,

00:02:33:00 - 00:02:41:02
Sean Tuffy
commodities. And so while the CFTC came in in the late 60 essentially as the the original CEA that overlooked commodities,

00:02:41:02 - 00:02:44:15
Sean Tuffy
so the CEA the Act and then the commodities exchange Administration.

00:02:44:15 - 00:03:11:11
Sean Tuffy
So there's the act, both CEA very confusing. So the act sort of designated that the agency overlooked commodities. And part of the thing was that the the only look over what was enumerated in the text. So every time a new futures or commodity came online, they had amend the act. Do you know, to add potatoes to add or in this case, not add onions to add any sort of new commodity to the act to allow the CEA to oversee it?

00:03:11:13 - 00:03:30:16
Sean Tuffy
And so that became tiresome. And then at the same time, as we move into the 60s, early 70s, financialization, as we know above, it starts to really be born. And so there's a feeling that futures in general need to be regulated, not specifically just commodities, futures.

00:03:30:16 - 00:03:37:23
Sean Tuffy
And so they decide they being the powers that be, the Congress decides we need to sort of step up our regulation of,

00:03:37:23 - 00:03:43:12
Sean Tuffy
commodities futures trading because it is now moving beyond, you know, commodities have been around forever.

00:03:43:12 - 00:03:47:03
Sean Tuffy
They've been traded, you know, for the US since the mid 1800s,

00:03:47:03 - 00:03:48:04
Sean Tuffy
globally traded much

00:03:48:04 - 00:03:49:11
Sean Tuffy
longer than that.

00:03:49:11 - 00:04:04:05
Sean Tuffy
But in their original sort of intention, the people trading them were essentially producers. Are users because essentially hedging farmers were trying to hedge their crops or lock in prices. Many of, you know, milk bakers were trying to lock and flour, you know, everyone.

00:04:04:05 - 00:04:27:11
Sean Tuffy
And it was essentially a physically based real economy hedging tool. And as you got to financialization, it stopped being that for a lot of people. And it started becoming much more sort of trading in speculatively oriented it. And so the feeling was that the CEA was not up to the task. And you need a sort of a more robust regulatory agency with more strictly with more broadly defined powers.

00:04:27:11 - 00:04:37:09
Sean Tuffy
So one of the things the CFTC comes in is rather than Congress having to say you can, you now need to regulate this. They can regulate all futures trading, which is how we run into it. And fun stuff,

00:04:37:09 - 00:04:37:15
Sean Tuffy
like,

00:04:37:15 - 00:04:44:22
Sean Tuffy
the election contracts. Right. So that's how the CFTC claimed jurisdiction over alleged contracts because those are options in future.

00:04:44:22 - 00:05:09:13
Sean Tuffy
So that's in their their broad remit. We can discuss how that's not how it should be in the later in the chat, but that's how it came to be. So that's so there was a regulatory agency. The decision was that as it became more sort of Wall Street orientated, that you needed a more robust regulator. And so in the 70s they moved forward to create the CFTC.

00:05:09:13 - 00:05:14:03
Sean Tuffy
And so that's where the origin now how it's formed that

00:05:14:03 - 00:05:24:09
Sean Tuffy
there was a move when it started, not have it be on its own. So if you read Robin Wigglesworth book trillions, the CFTC was originally supposed just to be part of the SEC.

00:05:24:09 - 00:05:46:22
Bennett Tomlin
So I think that's a good transition point to kind of get into. How common is it globally, historically, whatever, to kind of separate out the regulation of like, securities product from these commodities based financial products like, is that typical for other countries. And like you were talking about, it almost didn't happen here either.

00:05:46:22 - 00:06:09:03
Sean Tuffy
Right. Yeah. So it's so it's very odd. I guess it's the best way to put it. So the US like this is one of the things you live in the US, you've kind of accepts. Are you. You live in any country. You accept the way things are done as normal. But the US is really an outlier here. But the most notable other exception being, you know, America's neighbors to the north, Canada, which has an even crazier set up and has no federal securities oversight.

00:06:09:03 - 00:06:14:08
Sean Tuffy
And it's all done at the provincial level. So that's that's an even more chaotic attempt.

00:06:14:08 - 00:06:27:15
Sean Tuffy
So the US and Canada are the only two sort of regulator countries globally that don't have a single securities and market regulator that would have all, you know, futures, stocks, everything under one regulatory roof.

00:06:27:15 - 00:06:29:23
Sean Tuffy
And then like you said, you know, it almost didn't.

00:06:30:03 - 00:06:31:19
Sean Tuffy
That was almost the route the US went.

00:06:31:19 - 00:06:52:04
Sean Tuffy
And if you read the the book, Rob Wriglesworth book, the anecdote is that the SEC essentially was snobby and they didn't want to be regulating pork futures and pork bellies. And so they said that stuff is for farmers, not for Wall Street. We don't want to be regulating it. And they sort of pushed back against the idea that it should be under the SEC's remit and sort of path.

00:06:52:04 - 00:06:57:06
Sean Tuffy
And then the C dependency becomes what it is and it's spun out, and we are where we are today.

00:06:57:06 - 00:07:03:16
Bennett Tomlin
Are there any obvious benefits and drawbacks that arise from this division?

00:07:03:16 - 00:07:26:11
Sean Tuffy
champions of the division would argue, essentially, if you look at all of America's regulatory landscape, it's fractured everywhere. And so there is a belief that having competing regulatory I don't believe this, but there is an argument that having competing regulatory agencies keeps them honest and allows for competition. I mean that that's the best I can do.

00:07:26:13 - 00:07:28:16
Sean Tuffy
The other argument is that commodities

00:07:28:16 - 00:07:46:07
Sean Tuffy
are, you know, is a specialized oversight and are distinct, but that makes less and less sense as we get to, you know, Dodd-Frank, putting swaps into the CFTC remit and some other thing. So those are the two argued, there aren't really strong arguments for it beyond. That's the way it's always been done.

00:07:46:07 - 00:08:10:00
Sean Tuffy
The arguments against it, I think, are pretty self-evident. But, you know, it's that you have you don't have where we are today, where new people can look for crevices between the two agencies and try to sort of pick them off. And you don't have overlapping or conflicting jurisdictions. And in the case of, you know, obviously, this podcast and the crypto, you don't really have an industry that can play ball.

00:08:10:00 - 00:08:20:14
Sean Tuffy
I'm against that essentially. And so like having a single regulator, you know, is preferable for efficiency for oversight, for sort of market sanity,

00:08:20:14 - 00:08:38:02
Sean Tuffy
especially when you look at how it works. Now that, you know, the CFTC approved futures within the SEC has to approve their trading. Like it gets very messy around the edges. So like the argument against it is that it purely it's not efficient and not, you know, not a good way to run a railroad

00:08:38:02 - 00:09:05:21
Bennett Tomlin
What you got out there illustrates why the division between the SEC and the CFTC has become so important for cryptocurrency in that it is trying to pit them against each other, choose regulations from one or the other, trying to effectively remain in a gray zone for kind of both of them, or like to limit its overall like regulatory footprint by like specifically lobbying for certain pieces of policy that would explicitly put it in a certain thing,

00:09:05:21 - 00:09:16:09
Bennett Tomlin
using like advertisements and political giving to target certain regulators, like using the mouthpieces of certain crypto firms to specifically criticize certain regulators and

00:09:16:09 - 00:09:23:12
Bennett Tomlin
things like that. And so looking at that, like from crypto, it really seems like that division

00:09:23:12 - 00:09:32:08
Bennett Tomlin
makes it harder to have consistent frameworks for financial products. And, you know, that just seems like the obvious consequence of all that.

00:09:32:08 - 00:09:51:12
Sean Tuffy
Oh, yeah. Absolutely. And I think, you know, if we talk about the CFTC. And so we talked about its origin, and it was a largely like, I would say, in the nicest way possible, a very sleepy regulator for its first 30 years, like it was, you know, not a bad way. Like it had its market, it regulated it effectively.

00:09:51:14 - 00:09:53:00
Sean Tuffy
When you get to the late 90s,

00:09:53:00 - 00:10:03:00
Sean Tuffy
and that the name Stacy for the chair at the time in 98 pushes that the CFTC should regulate swaps and derivatives. You know, these are new instruments that are being

00:10:03:00 - 00:10:09:07
Sean Tuffy
created, have been created by Wall Street, that sort of it's actually slightly analogous to crypto. And they're new when they're not.

00:10:09:07 - 00:10:29:21
Sean Tuffy
But derivatives come up. Swaps come up. And these are new financial instruments that aren't explicitly mentioned anywhere in legislative text. And the CFTC says we should be able to regulate these OTC derivatives like these are these are essentially not that much functionally different than futures and options. Like why would it wait? They released paper. All hell breaks loose.

00:10:29:23 - 00:11:03:07
Sean Tuffy
They get pushback. Congress says explicitly, you can't do that. Chair quits long term capital management blows up ten years later. Financial crisis happens of giving the cliff notes version. And so then after after the financial crisis, Dodd-Frank comes in and they give the CFTC OTC derivative oversight that they asked for essentially a decade earlier. And sort of this makes the CFTC a much more consequential regulator, because it is now really like, you know, it interacted with Wall Street on futures and options, but now it's really sort of in the

00:11:03:07 - 00:11:04:15
Sean Tuffy
in the meat of the debate.

00:11:04:15 - 00:11:08:03
Sean Tuffy
And so that's when it became a much more consequential regulator,

00:11:08:03 - 00:11:24:17
Sean Tuffy
for Wall Street, for the industry. And then flash forward to the mid 2000 tens, as you guys surely know, and I'm sure your listeners knew why it's in the crypto conversation. It's because the CFTC became much more, I would say crypto curious and the SEC,

00:11:24:17 - 00:11:27:16
Sean Tuffy
and Bitcoin became designated a commodity.

00:11:27:18 - 00:11:49:02
Sean Tuffy
Whether we can argue whether that's right or not, I think everyone has their opinions on that. But that's essentially and they actually went a step further and said all crypto are commodities. Commodities are what no one's yet to explain. But that's how the CFTC, I would say, interjected itself and became the first regulator to move to regulate crypto.

00:11:49:02 - 00:12:25:02
Sean Tuffy
Now you can argue in some have that that is a better attempt in the SEC just sitting back and watching it unfold and not doing anything till the mid to that, the early 2020s. But that's sort of essentially how the CFTC became into conflict with the SEC. And this goes back to the problem with the set up. You know, one one hand to class and a commodity, even if the SEC disagrees, it's very hard once they've made the statement to disagree, unless you're going to sue your fellow regulator and set up an all, you know, a really terrible public policy fight.

00:12:25:02 - 00:12:39:16
Sean Tuffy
So that's where you end up in a bad place. And that's sort of how we ended up at the CFTC becoming in the conversation. And now sort of I would say it's fair the CFTC is the preferred regulator of the crypto industry.

00:12:39:16 - 00:12:43:07
Cas Piancey
so I actually want to jump into that for a second because you're talking about you're talking.

00:12:43:07 - 00:12:47:02
Cas Piancey
About the CFTC and the SEC. Kind of like they're on

00:12:47:02 - 00:12:47:18
Cas Piancey
In a sense.

00:12:47:18 - 00:12:51:07
Cas Piancey
Like equal footing that that the CFTC is taking.

00:12:51:07 - 00:13:00:10
Cas Piancey
On all these new markets and has been for several decades now. And that I mean, these are pretty large and growing markets. I would say.

00:13:00:10 - 00:13:02:11
Cas Piancey
But when you look at.

00:13:02:13 - 00:13:03:19
Cas Piancey
The SEC budget.

00:13:03:19 - 00:13:04:03
Cas Piancey
And you.

00:13:04:03 - 00:13:05:22
Cas Piancey
Look at the CFTC budget.

00:13:05:23 - 00:13:09:02
Cas Piancey
One of them is seven times bigger than the other one.

00:13:09:02 - 00:13:14:06
Cas Piancey
And I would I would also I haven't looked at the employee numbers.

00:13:14:06 - 00:13:16:08
Cas Piancey
But I assume that the SEC has.

00:13:16:08 - 00:13:17:07
Cas Piancey
Significantly more.

00:13:17:07 - 00:13:19:18
Cas Piancey
Employees than the. And then the CFTC.

00:13:19:18 - 00:13:22:19
Cas Piancey
So I wonder if the reason that they like.

00:13:22:21 - 00:13:28:14
Cas Piancey
They prefer the preferred regular regulator is the CFTC is mostly because.

00:13:28:14 - 00:13:29:11
Cas Piancey
They understand that.

00:13:29:11 - 00:13:33:03
Cas Piancey
The cftc's abilities are really.

00:13:33:03 - 00:13:33:22
Cas Piancey
Hamstrung.

00:13:33:22 - 00:13:52:01
Sean Tuffy
Yeah. I mean, we can all trying to. I mean, I would assume that is part of it. Well, like, I don't see any point, like, dancing around this. I would assume the CFTC is viewed as an easier regulator regulator and a lighter touch regulator. And I think and I don't I mean, I'm trying to be fair here because I'm not a huge fan of the SEC either.

00:13:52:01 - 00:14:06:14
Sean Tuffy
So I think I think for years, you know, so I my career, at least since the financial crisis has been tracking and, you know, really following financial regulation. And for years the CFTC had a much in finreg circles, a stronger

00:14:06:14 - 00:14:18:20
Sean Tuffy
recognition in the SEC in terms of like promulgating the rules that needed to and focusing on the the issues that it was supposed to and being essentially a less political organization like the SEC last ten, 15 years.

00:14:18:20 - 00:14:21:09
Sean Tuffy
So you come in a highly, highly more politicized.

00:14:21:09 - 00:14:29:05
Sean Tuffy
So I think the SEC, the CFTC is good at what sort elements, what they do with the expansion sort of into crypto into the,

00:14:29:05 - 00:14:37:21
Sean Tuffy
election betting sort of moves it beyond its comfort zone. And I think you are right. It compared the two aren't funded that on equal footing at all.

00:14:37:21 - 00:14:59:21
Sean Tuffy
The CFTC is well below. And that's because I think this is an important point. As you talk about sort of who regulates what the CFTC is an industry regulator, not a retail regulator, you know, so that's a that's a really important distinction. And I think it's important when you think about who regulates crypto or how we, you know, how that gets done in the future.

00:14:59:23 - 00:15:26:17
Sean Tuffy
The CFTC has essentially no expertise in investor level protection regulation like they are a markets regulator. They are an industry regulator. They make sure you know the markets function appropriately, but they don't have retail investor protection expertise. And as you look at sort of the you know, the two examples I brought up the, you know, general crypto, the the wider sense and the election betting,

00:15:26:17 - 00:15:30:08
Sean Tuffy
those are far more retail orientated.

00:15:30:08 - 00:15:48:17
Sean Tuffy
So I think that becomes, to me, one of the biggest challenges, which could all be washed away. You just put these two organizations together by having, you know, when you have an organization that's also looking after retail investor level protection that has no tradition of that. It's challenging.

00:15:48:17 - 00:15:49:20
Bennett Tomlin
and I think even,

00:15:49:20 - 00:16:05:12
Bennett Tomlin
Rostin Benham, who leads the CFTC, has said in, like, some of the cryptocurrency focused hearings that, like the CFTC, would need a change to its funding if Congress is interested in expanding its mandate.

00:16:05:12 - 00:16:11:05
Bennett Tomlin
Because like we've talked about here, they are the less resourced of these two regulators.

00:16:11:05 - 00:16:21:03
Sean Tuffy
Yeah. And so and that's why like, now I've been, you know, for those who follow me on social whatever, like, I, I have been ranting about merging the CFTC and I see I believe that window for like over a decade.

00:16:21:03 - 00:16:27:22
Sean Tuffy
And I will say like it comes up all not all the time, frequently in conversation. So post post GFC with

00:16:28:04 - 00:16:32:10
Bennett Tomlin
I going to say, didn't Paulson bring this up in like 2009 or something like that?

00:16:32:10 - 00:16:45:02
Sean Tuffy
it did come up. And it was my feeling is if it didn't happen that I it's hard for me to see it ever happening. But so after the GFC, there was a very legitimate push that these two orgs need to be put together.

00:16:45:02 - 00:16:55:02
Sean Tuffy
But institutional resistance sort of stopped it. And so now, you know, when you think about why does it happen, path dependency.

00:16:55:02 - 00:17:17:17
Sean Tuffy
And if you're cynical, the Senate Agriculture Committee really likes Wall Street donations. I mean, they and so they have different congressional oversight. And so Senate Committee oversees the CFTC and I I'm not the only one to suggest that. So I mean, I think there's a feeling that they rather enjoy the attention and lobbying money they get from Wall Street.

00:17:17:17 - 00:17:19:15
Sean Tuffy
The companies overseeing the CFTC.

00:17:19:15 - 00:17:36:21
Bennett Tomlin
will say as. Like a reporter. As someone who covers this, it's a little bit hilarious to me that I. That like half the crypto hearings and stuff. I have to hit a listen in on our agricultural committee meetings. They're talking about how best to regulate Bitcoin in the same hearing. They're talking about corn.

00:17:36:21 - 00:17:38:14
Bennett Tomlin
that feels ridiculous.

00:17:38:14 - 00:17:45:20
Sean Tuffy
Absolutely. Yeah. Like it's yeah. I mean, it's a very it's a weird place we're in now. And I think I mean, who knows

00:17:45:20 - 00:17:48:11
Sean Tuffy
who knows what happens with crypto regulation in the US if it,

00:17:48:11 - 00:17:53:10
Sean Tuffy
it could it should spark. Why are we doing this. Because any of the bills you've seen

00:17:53:10 - 00:18:05:22
Sean Tuffy
so far from the, you know, the bad faith ones, the good faith ones had this weird split where they still need both agencies to do pieces, and it's just to like who's who's riding shotgun and who's in the driver's seat when it comes to it.

00:18:06:00 - 00:18:09:03
Sean Tuffy
But they still need both agencies and it's just still a really weird

00:18:09:03 - 00:18:11:15
Sean Tuffy
setup. And I mean, if the industry

00:18:11:15 - 00:18:18:10
Sean Tuffy
doesn't do industry any good to have to do with multiple regulators, I'll put it that way. So most, most people in the industry would prefer to deal with a single regulator than

00:18:18:10 - 00:18:19:00
Sean Tuffy
to.

00:18:19:00 - 00:18:30:20
Bennett Tomlin
are there parts of the industry that benefit from having two regulators besides cryptocurrency, which we kind of talked about, which benefits from like pitting them against each other? Outside of that are the people who benefit from having to.

00:18:31:03 - 00:18:32:02
Sean Tuffy
So, I mean,

00:18:32:02 - 00:18:40:15
Sean Tuffy
generally speaking, I would say no. I mean, I would say like so if you look at what like let's leave crypto, which we'll, you know, I know your readers and listeners are crypto people, but like,

00:18:40:15 - 00:18:43:22
Sean Tuffy
anti crypto, they're crypto adjacent. But like,

00:18:43:22 - 00:18:47:01
Sean Tuffy
put that aside for a moment and just go back to futures and options.

00:18:47:02 - 00:18:49:20
Sean Tuffy
Obviously, most buy side firms, most banks

00:18:49:20 - 00:18:57:17
Sean Tuffy
deal with futures options and they deal with sort of securities. And so they those more I would say established regulatory

00:18:57:17 - 00:19:30:08
Sean Tuffy
regulated industries beyond plain occasionally coming up with a new instrument, trying to get it on one side of the fence or the other don't really benefit from having two regulatory agencies. And I think if you were to ask, you know, investment bankers, if you were to ask, you know, bank trading company, you know, trading floors, asset managers what their preference would be, they would prefer one over two because it's ultimately especially as, you know, stuff like swaps and derivatives, which is really what brings into conflict and the

00:19:30:08 - 00:19:40:17
Sean Tuffy
triad by having to have multiple reporting to different agencies. As you know, on the real back, all stuff is a nightmare. And so it would be easier to have one set of rules than to navigate.

00:19:40:17 - 00:19:45:07
Cas Piancey
You mentioned that if it if the merge didn't happen during the great financial.

00:19:45:07 - 00:19:46:17
Cas Piancey
Crisis, like.

00:19:46:19 - 00:19:50:08
Cas Piancey
It's never going to happen. Kind of feeling that you you have.

00:19:50:08 - 00:20:06:08
Cas Piancey
But I'm curious, just because I am reflecting on the Silicon Valley bank situation, and I, I definitely Bennett and I have done reporting some reporting on on the banking sector and how.

00:20:06:08 - 00:20:09:10
Cas Piancey
It's regulated, which is also totally.

00:20:09:10 - 00:20:11:00
Cas Piancey
Broken and weird.

00:20:11:00 - 00:20:16:11
Bennett Tomlin
OCC FDIC, Federal Reserve, and, state level regulators.

00:20:16:11 - 00:20:30:00
Cas Piancey
and state level regulators. Exactly. And then and then when something does happen, they always end up blaming each other and saying like, well, you know, the Federal Reserve was supposed to be looking out for this. And then they're like.

00:20:30:00 - 00:20:31:10
Cas Piancey
Well, no, though FDIC was.

00:20:31:10 - 00:20:34:12
Cas Piancey
Supposed to be, you know, it's everybody's pointing fingers at each.

00:20:34:12 - 00:20:38:01
Cas Piancey
Other. And so they all get off the hook because they say like, well.

00:20:38:01 - 00:20:40:12
Cas Piancey
Wasn't my responsibility. And then

00:20:40:12 - 00:20:42:15
Cas Piancey
ultimately like the banks and.

00:20:42:17 - 00:20:43:03
Cas Piancey
They're like.

00:20:43:03 - 00:20:49:16
Cas Piancey
I don't know. As far as I know, there's no criminal charges in regard to Silicon Valley Bank. Like nobody has gotten in trouble about like.

00:20:49:16 - 00:20:50:18
Cas Piancey
Right. So it's like.

00:20:50:20 - 00:20:57:21
Cas Piancey
These massive failures can happen. Everybody points fingers at everyone else. And then ultimately, like, no one faces responsibility.

00:20:57:21 - 00:20:58:17
Cas Piancey
So, well, I.

00:20:58:18 - 00:21:06:03
Cas Piancey
Hear what you're saying where you're like, oh, investment bankers might want this. I look at everyone else and I'm like, they don't want it, though, you know what I mean?

00:21:06:03 - 00:21:13:09
Sean Tuffy
Yeah. That's fair. And I think yeah, banking is far more broken than securities regulation in the US. And I think a lot of it like I heard it somewhere.

00:21:13:09 - 00:21:24:16
Sean Tuffy
Yeah a lot of it comes down to sort of the Federalist versus anti-federalist breakdown in the US. And that said, most of the US regulatory oversight on almost everything was largely state level forever.

00:21:24:16 - 00:21:53:07
Sean Tuffy
And so what you have is so the SEC created 1933 or 34, 33 and 34 to to acts is the first federal securities law. You know, prior to that, securities laws, all the state level thing. So and all of these agencies are trying to sort of stitch together a federal oversight where legal tradition doesn't have it. But you're right that, you know, we don't, you know, when you look at SVB, that I will say I paid a reasonable amount of attention.

00:21:53:07 - 00:21:55:23
Sean Tuffy
I actually don't think there was any criminality. I just think there was

00:21:55:23 - 00:22:12:22
Sean Tuffy
a ton of stupidity running through CB from the customer base and, you know, just running your hedges isn't criminal, it's just dumb. And then having a few billion dollars in a checking account as a criminal, it's just ridiculous. Like so I think

00:22:12:22 - 00:22:14:03
Sean Tuffy
I don't think criminal.

00:22:14:03 - 00:22:18:23
Sean Tuffy
Yeah, there might have been regular banking, more regular banking regulations versus criminality. I think it's a

00:22:18:23 - 00:22:32:02
Sean Tuffy
it's a tough thing to try to get sort of part of that. But I think your point but I will say when these things do break down and they always do, you are 100% right in the banking world. They'll point each other and never nothing gets fixed in the banking world.

00:22:32:04 - 00:22:34:07
Sean Tuffy
Another place where you should really

00:22:34:07 - 00:22:37:05
Sean Tuffy
rewire things. And in fairness, the

00:22:37:05 - 00:22:42:03
Sean Tuffy
upper the trust, the trust, the thrift supervision guys got shut down

00:22:42:03 - 00:22:47:13
Sean Tuffy
after the GFC. So we didn't lose one banking regulator, which was I guess, something.

00:22:47:13 - 00:23:01:08
Sean Tuffy
the reason I say we don't see that what one thing is, I think, you know, many people might know when you look at what happened to us post GFC was, is the UK, Ireland and Europe is they did a lot more root and branch on regulatory oversight than the US.

00:23:01:08 - 00:23:23:17
Sean Tuffy
So the US sort of, you know, got rid of the Office of Thrift Supervision and that was essentially it papered over the cracks and said we're fine. You know, the UK buried the old FSA started the FCA, put prudential regulation and the, you know, created a Europe essentially created three now for European level regulators. So there was a much more

00:23:23:17 - 00:23:28:22
Sean Tuffy
acknowledgment of framework failure and regulatory failure or failure outside the US than inside the US.

00:23:28:22 - 00:23:35:04
Sean Tuffy
And so but in an event that almost brings the world to a halt and bring, you know, set us up for a decade of low growth,

00:23:35:04 - 00:23:39:06
Sean Tuffy
doesn't say why do we have to securities regulators? I find it hard to believe

00:23:39:06 - 00:23:46:14
Sean Tuffy
we're ever going to get to the place where the emerging is going to always have this place where I'm posting dubs and jokes until I'm 80.

00:23:46:16 - 00:23:55:01
Sean Tuffy
Demanding is like Italy's demanding these things get merged, but they probably never do. I mean, I guess if I'm being in my more honest moments.

00:23:55:01 - 00:24:12:21
Bennett Tomlin
So, I mean, is that part of the takeaway? Kind of for the United States here? Like, real structural reform of regulators. Seems unlikely to happen in the foreseeable future if we were unable to pull it together after the great financial crisis, it seems unlikely to ever happen.

00:24:12:21 - 00:24:21:23
Sean Tuffy
I mean, the event that would trigger real root branch reform is so horrible, I don't think I want I definitely don't want to see it. So like, I think it's I think you will see

00:24:21:23 - 00:24:34:08
Sean Tuffy
tinkering around the edges and you probably end up seeing. Right. You're more likely to see a regulatory agency creative than you are to see one merger destroyed, which is, you know, honestly, you could say and I think they're doing good work, but I, you know, there's

00:24:34:08 - 00:24:35:03
Bennett Tomlin
Cfpb.

00:24:35:06 - 00:24:40:04
Sean Tuffy
is you know, that's you could I now and I did argue and I sort of changed my tune on this a

00:24:40:04 - 00:24:58:11
Sean Tuffy
little bit. They could have that could have been created as a division of any number of the existing regulators already. Like it didn't. Now it's fine that standalone I don't want to relitigate you know, that to the end of this. But like there's a world where you just say maybe that's the SEC job too, or the banking job too, but I, you know, you know, it's hard.

00:24:58:11 - 00:25:02:23
Sean Tuffy
It's easier to set up a new regulator than it is to rationalize existing regulators.

00:25:02:23 - 00:25:18:14
Sean Tuffy
And the other takeaway, I think it's important this is something that, again, America's tradition of, you know, and we're in that period now when you look at what the Supreme Court saying about what is federally allowed and what's a state's prerogative, you know,

00:25:18:14 - 00:25:22:19
Sean Tuffy
is unique, but a lot of ways to the American experience.

00:25:22:19 - 00:25:38:19
Sean Tuffy
So we don't you know, that isn't something that like, as you have, you know, when they tore down the FSA in the UK, it's that the FCA and the PRA you didn't have like the county saying, no, we should be doing that. People accept federal oversight of securities markets much and banking

00:25:38:19 - 00:25:42:13
Sean Tuffy
everywhere else without much of a second thought, you know.

00:25:42:13 - 00:26:05:06
Sean Tuffy
And so we're talking about the federal level. But you know, you have like the arguably one of the most powerful regulators in the US is the NYFDS you know, New York Department of Financial Services. And they're I mean, that's a state level regulator that has because of, you know, you know, wall Street being in Manhattan has sort of unprecedented global reach and is essentially a state regulator run out of, you know,

00:26:05:06 - 00:26:09:03
Sean Tuffy
Albany like it's it's, you know, it's just a very weird situation.

00:26:09:03 - 00:26:14:02
Cas Piancey
wonder with the incoming administration if you you think. Not that I'm asking you to.

00:26:14:02 - 00:26:16:17
Cas Piancey
Predict this, but I do.

00:26:16:19 - 00:26:21:08
Cas Piancey
But I am. I am curious if, you know, you're you're you're talking about.

00:26:21:10 - 00:26:23:10
Cas Piancey
The likelihood of a merge of these.

00:26:23:10 - 00:26:31:00
Cas Piancey
Being near zero and maybe more regulators coming into place. But I wonder if we're going to see

00:26:31:00 - 00:26:32:20
Cas Piancey
more erosion.

00:26:32:23 - 00:26:37:20
Cas Piancey
Of the ability to regulate from the SEC and CFTC, federal regulators.

00:26:38:02 - 00:26:38:17
Cas Piancey
And,

00:26:38:17 - 00:26:41:13
Cas Piancey
I don't know if our, our viewers and listeners are familiar with.

00:26:41:13 - 00:26:43:11
Cas Piancey
Blue sky laws, but blue sky laws.

00:26:43:11 - 00:26:43:22
Cas Piancey
Were,

00:26:43:22 - 00:26:45:23
Cas Piancey
far more commonplace.

00:26:46:01 - 00:26:47:19
Cas Piancey
Before the SEC was established.

00:26:47:19 - 00:26:48:21
Cas Piancey
And they're basically.

00:26:48:21 - 00:26:54:12
Cas Piancey
This it was like anti-fraud legislation, but it was done state by state. So you just had to like.

00:26:54:12 - 00:26:57:03
Cas Piancey
Do things in a different state and mail things and.

00:26:57:03 - 00:27:00:03
Cas Piancey
Do like there were just weird loopholes that allowed people to get away with.

00:27:00:08 - 00:27:07:07
Cas Piancey
All kinds of crazy financial shenanigans. But I wonder if that that's more along the lines of what you.

00:27:07:07 - 00:27:08:07
Cas Piancey
Expect us to see.

00:27:08:11 - 00:27:12:19
Cas Piancey
Like a an erosion of federal regulation and, and a cropping up of.

00:27:12:19 - 00:27:14:13
Cas Piancey
These state regulators.

00:27:14:13 - 00:27:15:23
Cas Piancey
Being far more important.

00:27:15:23 - 00:27:47:08
Sean Tuffy
I mean, certainly, you know, the Chevron decision striking up Chevron last year and a couple of other Supreme Court decisions make it. And this is really interesting and make it basically impossible for a regulator to promulgate new rules unless it's explicitly laid out in their mandate. So the idea so you know, the right the last good battle cry of the crypto news the last two years, which is when the SEC is doing regulation and enforcement, they should just give us new rules.

00:27:47:10 - 00:28:09:19
Sean Tuffy
They now can't give new rules. So like like honestly. So even if, you know, Trump appoints a pro crypto sec chair and they produce guidance or rules on crypto, a well-financed anti crypto lobby is going to sue them because they don't have the right under Chevron to do that. So for any meaningful crypto legislation is going to have to come to the legislator.

00:28:09:19 - 00:28:32:00
Sean Tuffy
And that's I mean I don't see that happening soon. So I think what you will see, I think you're right that federal regulators between a Republican, the Trump administration and the Supreme Court are greatly constraining what they can do from regulation, which leads to two outcomes. The first is actually regulation by enforcement. I'm using air quotes now,

00:28:32:00 - 00:28:35:08
Sean Tuffy
because more prominent because they can't do regulation by regulation anymore.

00:28:35:08 - 00:29:07:03
Sean Tuffy
All they can do now, the focus on the set enforcement might diminish or change targets, but that's all they can do. They can't produce new rules unless it's expressly in their remit. Which brings us to the States. And I think what actually happens at the state level is I mentioned the NYFDS. They become much more important, but not in a like Texas could say, big stock exchanges and doing whatever they want kind of way in a Spitzer kind of way and cracking down on research.

00:29:07:07 - 00:29:39:14
Sean Tuffy
So, you know, you've got to remember that, like Spitzer, I mean, he rose to fame because the SEC at the time step back from something in a state in an ambitious state, AGS stepped in to pursue a better protection regulation. So I think what you're going to end up with, probably for crypto, but probably for a lot of stuff, is AGS and state level regulators in California, New York to lesser degree, Massachusetts, because it's to a lesser degree these states pursuing aggressive cases.

00:29:39:15 - 00:29:55:18
Sean Tuffy
And so I think, you know, be careful what you wish for. But like state level regulation is only good if they're on your side. Otherwise you have to fight. You know, it's sort of like, would you rather fight one regulator or 50 regulators? Right. Like, I mean, so it becomes a like a lot more challenging. So I think you will see

00:29:55:18 - 00:29:58:03
Sean Tuffy
a lot more action at the state level.

00:29:58:05 - 00:30:07:03
Sean Tuffy
I think you will see and I think you will see the federal regulators, securities regulators, I don't want to touch anybody else, but I think that you will see them

00:30:07:03 - 00:30:12:19
Sean Tuffy
deliberately pull back in some areas and be and they're restrained anyway they do that. The current

00:30:12:19 - 00:30:19:03
Sean Tuffy
judiciary move doesn't give them a lot of leeway to pursue new regulations.

00:30:19:03 - 00:30:23:02
Bennett Tomlin
So. Sounds like we're not going to get a federal money transmitter. Statue.

00:30:23:02 - 00:30:30:15
Sean Tuffy
Well, yeah, I mean, that's it seems that I mean, I know the Cfpb actually is trying their hardest to sort of row in,

00:30:30:15 - 00:30:32:08
Sean Tuffy
yeah, I mean, I think I don't like

00:30:32:08 - 00:30:37:04
Sean Tuffy
trying to figure out what, you know, a Trump administration. I had to do this eight years ago and was

00:30:37:04 - 00:30:40:20
Sean Tuffy
awful that trying to figure out what they're going to do now is somewhat guesswork.

00:30:40:20 - 00:31:01:13
Sean Tuffy
But like, I think in a purist sense, the legislator is not everyone you know, you won't mind read Redway all three houses, but it's a Republican House by like two votes and not a vote in the Senate to push anything through. So you're still in like a deadlock situation that, you know, I don't see a federal money transmitter coming through.

00:31:01:13 - 00:31:15:09
Sean Tuffy
I don't see a third. I don't see federal crypto legislation coming through unless I mean, unless they can. Really stablecoins is the easiest one. So they could get their act together. In stablecoins, you might be able to thread that needle through because there is some more,

00:31:15:09 - 00:31:24:11
Sean Tuffy
slightly more receptive nature to that. But the problem I think with, you know, even with stablecoin, both sides overplay their hand constantly.

00:31:24:11 - 00:31:39:15
Sean Tuffy
So, you know, like if they could get together, say, look, stablecoins for better or worse, aren't going away, but they're pretty easy to regulate if we want to, you know, get some policy decisions about who's allowed to do them and how we oversee them. But not the hardest thing to really regulate.

00:31:39:15 - 00:31:43:16
Sean Tuffy
But, you know, the pro crypto side will then put a bunch of other stuff on it that is unacceptable.

00:31:43:16 - 00:32:16:11
Sean Tuffy
And then, you know, the Warren will pour in like crazy AML requirements that are like, I mean, AML is useful, but like, you know, secret bank secrecy needs to be tempered, individual liberties be tempered. So I think I think it's hard in the current environment to see what happens. And I actually I tweeted the other day or tweeted whatever we're calling it these days that Brown in in Ohio, though nominally to a crypto favor, it's actually probably bad for the future hopes of the crypto bill because he was not as ideologically opposed.

00:32:16:11 - 00:32:21:11
Sean Tuffy
It was willing more so than Warren, to compromise, and could have probably shepherded through

00:32:21:11 - 00:32:27:21
Sean Tuffy
the more skeptical votes he, you know, you needed to get it. Stablecoin bill gross. I just I just think it's a it's hard to see anything happening.

00:32:27:21 - 00:32:30:20
Cas Piancey
So we're recording this what maybe a week after

00:32:30:20 - 00:32:33:13
Cas Piancey
Marc Andreessen of A16z.

00:32:33:13 - 00:32:41:09
Cas Piancey
Went to, went on to Joe Rogan and complained about all of the banking that has happened in, in crypto.

00:32:41:09 - 00:32:45:23
Cas Piancey
And how, I don't know, he was trying to pretend like he was champion championing.

00:32:45:23 - 00:32:46:11
Cas Piancey
The.

00:32:46:11 - 00:32:47:02
Cas Piancey
People.

00:32:47:02 - 00:32:47:14
Cas Piancey
And how.

00:32:47:14 - 00:32:48:15
Cas Piancey
Hard it is for.

00:32:48:15 - 00:32:57:10
Cas Piancey
Those getting debanked I don't think he's mentioning that the people getting debanked are like multimillionaire venture capitalists and people spinning up whatever,

00:32:57:14 - 00:33:01:07
Bennett Tomlin
Listen, we all agree. Marc Andreessen has the hardest life.

00:33:01:16 - 00:33:03:06
Cas Piancey
Yeah. Yeah. Well, so.

00:33:03:06 - 00:33:07:06
Cas Piancey
But my my point here being isn't that I kind of feel.

00:33:07:06 - 00:33:09:11
Cas Piancey
Like this is exactly what.

00:33:09:13 - 00:33:11:04
Cas Piancey
People like Marc Andreessen want.

00:33:11:06 - 00:33:12:07
Cas Piancey
Like what we're.

00:33:12:07 - 00:33:19:04
Cas Piancey
Talking about right now, this stepping back of of any federal regulation and then this broken kind of.

00:33:19:06 - 00:33:21:05
Cas Piancey
Weird system of state.

00:33:21:05 - 00:33:24:22
Cas Piancey
Regulations that you never even know if if.

00:33:25:00 - 00:33:26:01
Cas Piancey
They take it to the Supreme.

00:33:26:01 - 00:33:27:12
Cas Piancey
Court and who knows what they're going to say.

00:33:27:12 - 00:33:30:15
Cas Piancey
About it, right? Right. Like you, you start doing these, getting.

00:33:30:15 - 00:33:32:06
Cas Piancey
Into this weird dynamic.

00:33:32:11 - 00:33:33:15
Cas Piancey
Where it's like, oh.

00:33:33:15 - 00:33:34:21
Cas Piancey
Isn't like.

00:33:34:22 - 00:33:38:01
Cas Piancey
I think that that's what these guys actually do want is just.

00:33:38:01 - 00:33:39:20
Cas Piancey
Complete.

00:33:39:22 - 00:33:43:00
Cas Piancey
Regulatory failure, I guess, would be the way I.

00:33:43:00 - 00:33:45:22
Cas Piancey
Would term it. But maybe, maybe I'm too pessimistic, I don't know.

00:33:45:22 - 00:33:58:06
Sean Tuffy
No, I mean, I'm a pretty cynical person, so I would. I would tend to agree. I mean, I think if you look at that sort of the, like the Cfpb coming all of a sudden like. Yeah, between Elon and the Joe Rogan thing, like I

00:33:58:06 - 00:34:06:21
Sean Tuffy
mean, you can look at it pretty cynically and say, you know, like the fintech guy had a bunch of trading by the Cfpb.

00:34:06:22 - 00:34:13:18
Sean Tuffy
One shut down and Elon Musk wants to get a money transmitter thing without having to have federal oversight. I mean, like it's not like

00:34:13:18 - 00:34:20:10
Sean Tuffy
they're not playing chess at all. They are. They just I think you're right. They just selfishly want to be like one of the things with fintech,

00:34:20:17 - 00:34:24:04
Bennett Tomlin
Elon's not even a fan of two dimensional chess.

00:34:24:04 - 00:34:29:04
Sean Tuffy
So I mean, one of the things, you're right, that a lot of like the last decade of fintech has been about

00:34:29:04 - 00:34:33:11
Sean Tuffy
getting as close to doing regulated financial services without being regulated as possible.

00:34:33:15 - 00:34:38:02
Sean Tuffy
And so they absolutely benefit from a world where gridlock

00:34:38:02 - 00:34:47:00
Sean Tuffy
reigns and nothing get pushed through because they continue to push through the cracks and allowed to do as much as they can without it. Sort of oversight.

00:34:47:00 - 00:34:54:12
Cas Piancey
I think we've entered this period of time where regulators and there's not to say there's no reason for this, but where regulators.

00:34:54:12 - 00:34:55:01
Cas Piancey
Are, are.

00:34:55:01 - 00:34:57:02
Cas Piancey
Looked at as inefficient,

00:34:57:02 - 00:34:58:01
Cas Piancey
useless,

00:34:58:01 - 00:34:59:21
Cas Piancey
that they're on the wrong side.

00:34:59:21 - 00:35:01:06
Cas Piancey
Of a lot of these battles.

00:35:01:06 - 00:35:03:15
Cas Piancey
and now people would rather trust.

00:35:03:15 - 00:35:03:23
Cas Piancey
These.

00:35:03:23 - 00:35:04:22
Cas Piancey
Billionaires

00:35:04:22 - 00:35:07:02
Cas Piancey
who are talking their book and they'll be like.

00:35:07:02 - 00:35:09:15
Cas Piancey
Yeah, yeah, these regulators, I hate them. I hate these regulators.

00:35:09:15 - 00:35:12:02
Cas Piancey
We should get rid of them. Whereas they don't understand that.

00:35:12:02 - 00:35:13:14
Cas Piancey
Maybe like.

00:35:13:16 - 00:35:15:07
Cas Piancey
I'm not I'm not a fan of the way that.

00:35:15:07 - 00:35:16:17
Cas Piancey
I'm. That's why I like the idea of.

00:35:16:17 - 00:35:17:07
Cas Piancey
Merging these.

00:35:17:07 - 00:35:18:16
Cas Piancey
Two. I like the idea of.

00:35:18:17 - 00:35:25:14
Cas Piancey
And of enhancing it so that, okay, we merge these two and then we have clear restrictions on what's going to happen and.

00:35:25:16 - 00:35:26:08
Cas Piancey
Who's allowed to.

00:35:26:08 - 00:35:29:15
Cas Piancey
Play in these markets. And you know, but I.

00:35:29:17 - 00:35:30:19
Cas Piancey
I yeah, I guess I.

00:35:30:19 - 00:35:31:19
Cas Piancey
I fear now.

00:35:32:00 - 00:35:37:12
Cas Piancey
That because the pop the popular side of this is actually what the.

00:35:37:12 - 00:35:40:20
Cas Piancey
Billionaires want that again. Yeah. The cynical.

00:35:40:22 - 00:35:42:17
Cas Piancey
Feeling of, oh, the people.

00:35:42:17 - 00:35:44:01
Cas Piancey
Don't even realize.

00:35:44:03 - 00:35:46:23
Cas Piancey
That the regulators are are supposed to be there.

00:35:47:01 - 00:35:48:04
Cas Piancey
For their benefit.

00:35:48:04 - 00:35:49:17
Cas Piancey
That that we've already.

00:35:49:17 - 00:35:50:18
Cas Piancey
Gone past that. And now.

00:35:50:18 - 00:35:52:04
Cas Piancey
People are like, yeah, the regulators.

00:35:52:04 - 00:35:55:13
Cas Piancey
Are there to hurt me personally. They're not even there to protect me.

00:35:55:13 - 00:36:06:10
Sean Tuffy
Yeah. So I think I think that's probably true. So I would say that's particularly true from what I see online. Sort of like from the the broadest Gen-Z stereotype, but sort of from the

00:36:06:10 - 00:36:18:01
Sean Tuffy
certainly from people who are more interested in crypto or Bitcoin or whatever. They certainly are definitely feel the regulator is preventing them from making money and they feel like, you know, like that's what they see.

00:36:18:02 - 00:36:26:19
Sean Tuffy
You know, the SEC, its primary function is to prevent me from making money. And I think that's in that space. Certainly they they look past,

00:36:26:19 - 00:36:37:08
Sean Tuffy
you know, whatever merits the SEC has and it's definitely see them as an inhibitor. And they're, they're stopping me from getting mined. And I think that's certainly a dangerous place. And I think some of that's earned someone that's unearned.

00:36:37:12 - 00:36:52:22
Sean Tuffy
But I think if you look at sort of but I think you would, you need to look at sort of the, the feeling of the general industry of the participants and then sort of the, the rich people and the people, you know, the people who run the companies. I mean, I think they also sort of generally prefer

00:36:52:22 - 00:37:03:16
Sean Tuffy
the status quo for crypto regs in the US because there is done and they can continue to sort of play in the gray area, because if you look at, you know, Europe passed crypto regulation couple of years ago, came alive.

00:37:03:16 - 00:37:20:04
Sean Tuffy
You know, it's mica. It's tremendously boring. And like no one really likes it or hates it. But like crypto is a very different thing over here because they put enough basic framework that you don't have the sort of, let's say, drive. So I think a lot of it is very specific to this and the culture in the US at the moment.

00:37:20:04 - 00:37:37:13
Sean Tuffy
And this sort of feeling and, you know, I don't want to dive too deep into pop psychology of sort of the system being rigged against you. And then, you know, like, let's be honest, like we the crypto industry was embodying industry was handed a

00:37:37:13 - 00:37:42:20
Sean Tuffy
gift with Gary Gensler becoming the SEC chief because he is even what he is, right?

00:37:42:20 - 00:38:02:14
Sean Tuffy
He's unlikable. I mean, he's just not like he is a very unlikable character and a perfect boogeyman for an industry. And so, like the simple fact that, like, who is the chair of the SEC raise itself to a talking point during presidential election if something's gone wrong, like if you're the Cherubim Securities regulator, like the average person should not know who you are.

00:38:02:15 - 00:38:33:06
Sean Tuffy
I mean, like, it's really not a job that, like, people should know your name. Like they should just know the regulators doing stuff, but like, you should not know who's in charge of it. And so I think that sort of the whole, you know, the, the ferment around it is really sort of personality driven and they sort of found the perfect, perfect guy from their perspective of because, you know, like my background is far more trad fi and like I can say the SEC Gary Gensler reign at the SEC was not born by the trad fi side either.

00:38:33:06 - 00:38:36:04
Sean Tuffy
I mean, it was sort of like he was an equal opportunity,

00:38:36:04 - 00:38:39:23
Sean Tuffy
antagonist when it comes to sort of trad fi and crypto.

00:38:39:23 - 00:38:56:06
Bennett Tomlin
What's kind of hilarious to me about that is there was a brief window when Gary Gensler was initially nominated, where the cryptocurrency industry was excited about him because he had lectured on cryptocurrency and because he had shown some, like, openness and familiarity with the industry.

00:38:56:06 - 00:38:58:07
Bennett Tomlin
And then they very quickly changed their tune.

00:38:58:07 - 00:39:01:22
Sean Tuffy
Yeah. I mean, like I told a joke the other day, you know, it's funny, but

00:39:01:22 - 00:39:15:16
Sean Tuffy
crypto industry was briefly very excited because they said Gary got crypto, but also like Gary got crypto. So it's a real monkey problem. Monkey paw situation. Like you want a securities regulator to understand crypto. Like be careful of that because it also means he understands it.

00:39:15:16 - 00:39:18:19
Sean Tuffy
So like any like notwithstanding his approach

00:39:18:19 - 00:39:34:18
Sean Tuffy
to enforcement, like he like I think I will say this like I had to have my issues on. I think he was more right than wrong on crypto. But I think also, as I've been told at various points in my career, being right, as in a bulletproof vest. And so I think his approach

00:39:34:18 - 00:39:37:13
Sean Tuffy
made his life a lot more difficult than it needed to be.

00:39:37:13 - 00:39:49:04
Cas Piancey
Yeah. I think it's proven that at least under his reign enforcement and like enforcing regulation has not worked. And that might just be.

00:39:49:06 - 00:39:50:06
Cas Piancey
Because.

00:39:50:08 - 00:39:57:11
Cas Piancey
The arguments they made in courts were poorly done or like I, I don't know why it hasn't appropriately.

00:39:57:11 - 00:39:58:10
Cas Piancey
Worked, but like

00:39:58:10 - 00:40:00:01
Cas Piancey
I think the ripple case was really.

00:40:00:01 - 00:40:02:00
Cas Piancey
A turning point,

00:40:02:02 - 00:40:03:06
Cas Piancey
Where it was like, oh, wow.

00:40:03:09 - 00:40:04:03
Cas Piancey
This has been.

00:40:04:03 - 00:40:05:21
Cas Piancey
Incredibly.

00:40:05:23 - 00:40:11:16
Cas Piancey
In a ineffectual and inefficient and wasted everyone's time and money.

00:40:11:16 - 00:40:17:18
Sean Tuffy
And I like that you guys talked about it? Yeah, I think it's. I don't want to sort of rehash it, but, I mean, he was

00:40:17:18 - 00:40:35:09
Sean Tuffy
never my criticisms of Gary Gensler. He was also between a rock and a hard place because, you know, that the same industry that attack him, you know, and, and same politicians that attacked him for regulation by enforcement also attacked him for trying to regulate FTX and then attack him for not regulating FTX, not before it blew up.

00:40:35:09 - 00:40:54:22
Sean Tuffy
So and a lot of ways, being a regulator is really thankless. If you happen to be there when something goes wrong because you almost never catch it before, it really blows up. You just hope to catch it before it like becomes, you know, a world breaking event. So I, I don't think he was in a particularly winnable situation.

00:40:55:01 - 00:40:57:15
Sean Tuffy
Now. I think he is approaching his

00:40:57:15 - 00:41:18:13
Sean Tuffy
political ambitions probably made it even less winnable. But like it's like I just think he was it was I think the other thing to think about when he launched, it's really the SC launched its real sort of crypto attack. It was in the crypto winter was happening. You know, like there were a lot of people and I will say I was one of them and said, look, this thing's going to burn out anyway.

00:41:18:15 - 00:41:33:19
Sean Tuffy
So he, you know, he's going to come in with all these actions, mop up the mess. You know, FTX have blown up, all these things are blowing up. It'll be gone anyway by the time he's done that. Obviously it's proved far more resilient than certainly I thought it was. And I think far more resilient than the policymakers thought it was.

00:41:33:19 - 00:41:39:17
Sean Tuffy
And then they were prices started, numbers started going up again. And all of a sudden he became the bad guy again.

00:41:39:17 - 00:41:45:21
Bennett Tomlin
I think there are places you can criticize Gary Gensler, but, like, even a lot of his crypto focused,

00:41:45:21 - 00:42:00:11
Bennett Tomlin
enforcement was reasonably successful. And even the cases that are still ongoing, most of the ones that are coming to my mind seem like justified by at least some amount of legitimate concern about, like, rule breaking and things like that.

00:42:00:13 - 00:42:17:12
Bennett Tomlin
Like there there was never really a possibility of there being new crypto legislation coming through Congress in the last several years. There's never been like enough of a majority or a bipartisan coalition that was ever actually going to make that happen.

00:42:17:12 - 00:42:20:09
Cas Piancey
will say that part of the issue that I. The part of the.

00:42:20:09 - 00:42:21:06
Cas Piancey
Criticism for a lot of.

00:42:21:06 - 00:42:22:20
Cas Piancey
People is that he.

00:42:22:20 - 00:42:25:09
Cas Piancey
Was going after, you know.

00:42:25:09 - 00:42:25:21
Cas Piancey
Like.

00:42:25:21 - 00:42:28:20
Cas Piancey
Famous people doing NFT projects.

00:42:28:20 - 00:42:28:23
Cas Piancey
Where

00:42:29:11 - 00:42:30:04
Bennett Tomlin
Yeah.

00:42:30:04 - 00:42:30:17
Cas Piancey
Like, I'm.

00:42:30:18 - 00:42:31:16
Cas Piancey
Not saying it's not.

00:42:31:16 - 00:42:32:12
Cas Piancey
A worthy.

00:42:32:12 - 00:42:36:15
Cas Piancey
Case to go after, but it's it also feels like a super.

00:42:36:15 - 00:42:37:22
Cas Piancey
Easy slam dunk.

00:42:37:22 - 00:42:57:19
Bennett Tomlin
Well, yeah. But like, that's the thing. Well, and like, the thing is, if you don't go after those cases, right, if you don't go after Jake Paul, Logan Paul or whatever promoting Tron, that becomes permissible, right? You need to go after the people who are going to immediately settle and in so doing, discourage everyone else from beginning that type of behavior.

00:42:57:19 - 00:43:02:15
Cas Piancey
I'm not I'm not arguing against that. I'm saying that it if if that's the only

00:43:02:17 - 00:43:13:11
Bennett Tomlin
But but it's not right. You went after like the top crypto firms in the United States Coinbase, Gemini like circle. He went after Poloniex and Justin Sun

00:43:13:11 - 00:43:14:12
Cas Piancey
so I think

00:43:14:12 - 00:43:16:11
Cas Piancey
we've been talking about stablecoins.

00:43:16:11 - 00:43:18:11
Cas Piancey
Like that, the idea that.

00:43:18:11 - 00:43:24:21
Cas Piancey
There's no legislation and no actions taken, taken against any of these coins, whether they've done.

00:43:24:21 - 00:43:29:04
Cas Piancey
Spectacularly well or they've spectacularly failed, like the idea that.

00:43:29:04 - 00:43:31:15
Cas Piancey
No one has ever come after them for anything.

00:43:31:17 - 00:43:34:08
Cas Piancey
Or tried to be like, hey, here's I.

00:43:34:08 - 00:43:40:18
Cas Piancey
You know, even when tether got in trouble, the amount of trouble that they got in was so minimal.

00:43:40:18 - 00:43:41:16
Cas Piancey
And the.

00:43:41:19 - 00:43:43:00
Cas Piancey
The deal.

00:43:43:00 - 00:43:44:05
Cas Piancey
That they made with New.

00:43:44:05 - 00:43:48:11
Cas Piancey
York was so easy to just be like, yeah, here's.

00:43:48:11 - 00:43:50:07
Cas Piancey
Whatever the information you want. And,

00:43:50:07 - 00:43:52:21
Cas Piancey
and we'll pay our $30 million fine or whatever it was and move.

00:43:52:21 - 00:43:57:08
Cas Piancey
On like that. Those the inability to do real.

00:43:57:08 - 00:44:05:22
Cas Piancey
Legislation and ensure real regulation is occurring so that everyone knows what's going on, I think has been the the real criticism as.

00:44:05:22 - 00:44:08:17
Cas Piancey
Opposed to like, yeah.

00:44:08:19 - 00:44:15:18
Cas Piancey
I know he's gotten a few of these people for I don't know, like Gemini earn or whatever. Like how many people use that benefit? You know what I mean?

00:44:15:18 - 00:44:29:09
Bennett Tomlin
I mean, very few. But that's kind of broadly a crypto adoption problem. You know, like like the amount of money and attention that goes into crypto is still somewhat disconnected from the number of, like, people who actually use crypto.

00:44:29:09 - 00:44:43:09
Sean Tuffy
the celebrity thing, I mean that is a standard playbook like, you know after the most famous people because you hope to set an example. You know Clayton did that with the ICO quite did with ICOs. It's a pretty standard approach I think, you know, just there's so much money.

00:44:43:09 - 00:44:50:12
Sean Tuffy
In a small number of people's hands and it's it's been it's, you know, SEC doesn't have the right to find people for like $1 trillion.

00:44:50:12 - 00:44:55:06
Sean Tuffy
I mean, ultimately like there are sort of like there's sort of limits to how much they can do. And so I think

00:44:55:06 - 00:45:10:01
Sean Tuffy
the problem, if there is to be a I think then it's point like sec is still one far more than they've lost on crypto cases under under Gary Gensler. So I think it's you know, when you're in the social media sphere and it's very easy to get like it's two things.

00:45:10:01 - 00:45:30:14
Sean Tuffy
It's very easy to get sucked in that this is a a bigger industry than it is. Like nothing. Oh, it's big and lots of people have lots of money. But you know, it's not it's relative to the larger financial industry. It's not that it's not that big and it's, you know, every time there's a setback in court, you hear about that ceaselessly for months.

00:45:30:14 - 00:45:41:23
Sean Tuffy
Whereas when you know they they win, it just sort of gets brushed aside. So I think we should say like they've had more success that not I do think the challenge is he never the SEC never

00:45:41:23 - 00:45:49:12
Sean Tuffy
went the extra step when they could have and introduced sort of guidelines or regulation. But you know, sort of for these, you know, whether you know it.

00:45:49:14 - 00:45:53:07
Sean Tuffy
Gensler I believe is sincere his belief that the existing rules cover it.

00:45:53:07 - 00:45:55:10
Sean Tuffy
And he didn't need to do you also,

00:45:55:10 - 00:46:01:10
Sean Tuffy
notwithstanding the custom crypto custody rule, which sort of contradicts that position. But,

00:46:01:10 - 00:46:02:21
Sean Tuffy
so I just think it's sort of

00:46:02:21 - 00:46:18:00
Sean Tuffy
it's sort of just been a it's a they've been in a weird place. They were led by probably not the person, the best person to lead the crusade, because you need to get public opinion and policymakers on your side, and you can't sort of

00:46:18:00 - 00:46:19:15
Sean Tuffy
burn the boats on your way out.

00:46:19:15 - 00:46:38:13
Sean Tuffy
So, I mean, if you look at and anyone familiar with Gonzales's term because I had to be his term at the CFTC, I mean, it ended largely the same way. Like it didn't end with like, you know, like high fives on the way out the door. A lot of people and especially international regulators, were very happy to see him no longer at the CFTC.

00:46:38:13 - 00:46:42:22
Sean Tuffy
So he part of it is a sort of a singular management personality style.

00:46:42:22 - 00:47:05:20
Bennett Tomlin
Yeah. I just wanted to highlight, like. I think sometimes, especially in the crypto information bubble, there's certain people who like, accept as true the crypto industry's framing of Gensler's term. And I think there's a significant gap in certain places between reality and like the cryptocurrency like framing there or cryptocurrency industry framing on it.

00:47:05:20 - 00:47:06:23
Bennett Tomlin
Especially since like,

00:47:06:23 - 00:47:12:21
Bennett Tomlin
biggest, most prominent loss I can come up with, like for the SEC when it comes to crypto is XRP.

00:47:12:21 - 00:47:15:14
Bennett Tomlin
And that's a Clayton suit, right. Not a Gensler suit.

00:47:15:14 - 00:47:32:10
Sean Tuffy
yes. I mean, I think my biggest criticism of Gensler, it's not so much like I said, like I he was mostly right. I think it was just his approach. And knowing you were heading into a House judiciary and knowing that like Chevron was going to get killed at some point, like I was, the writing was on the wall.

00:47:32:12 - 00:47:48:12
Sean Tuffy
Then at some point they were going to run on a road for agency discretion to not come up with some sort of guideline on how you could register a coin, for example. You know, I think it's a fair criticism which says you can register a coin security and then you go to them, you say, how do you do that?

00:47:48:12 - 00:47:51:19
Sean Tuffy
And they say, I don't know. I mean, that's a fair, but that is a fair criticism.

00:47:51:19 - 00:47:58:02
Sean Tuffy
I don't regulate by force and I don't think it's a fair criticism. That's how regulation and enforcement both work. So I just think,

00:47:58:02 - 00:48:01:00
Sean Tuffy
and I and I'm also, I will say, like, I

00:48:01:00 - 00:48:12:14
Sean Tuffy
as a for more track I person like I think as I mentioned Paul a while ago, like his tenure and his on the trad fi side by side has been equally as poorly received.

00:48:12:14 - 00:48:20:23
Sean Tuffy
And I would say as much as he was mostly right in crypto, he was mostly wrong on trad fi and I and I. So I think like that it's sort of a double whammy

00:48:20:23 - 00:48:23:03
Sean Tuffy
for sitting for commissioner. So I think

00:48:23:03 - 00:48:31:17
Sean Tuffy
it just leaves us in a weird we should be in a better place because I think Ben and I have a good point, that a lot of his cases weren't bad on the face of it.

00:48:31:17 - 00:48:42:19
Sean Tuffy
You know, you could argue for certain points here. Yes, yes or no. I mean, that's a that's a perfectly fine thing to argue, but I don't think it was as disastrous as it now seems like. Yes.

00:48:42:19 - 00:48:43:20
Cas Piancey
another thing that I forgot.

00:48:43:20 - 00:48:45:23
Cas Piancey
To say, though, is that the other flip side of this.

00:48:45:23 - 00:48:46:17
Cas Piancey
Criticism is.

00:48:46:17 - 00:48:55:01
Cas Piancey
That FTX happened like that. FTX was allowed to have an FTX, an FTX, US, that they were allowed to.

00:48:55:02 - 00:48:56:04
Cas Piancey
SBF and others.

00:48:56:04 - 00:48:57:05
Cas Piancey
Were allowed to get the ear.

00:48:57:05 - 00:48:59:17
Cas Piancey
Of politicians, that they were allowed to have meetings.

00:48:59:17 - 00:49:03:12
Cas Piancey
With the SEC that I hear, I hear the idea of like, well, yeah.

00:49:03:16 - 00:49:05:05
Cas Piancey
Why? Why wouldn't they?

00:49:05:05 - 00:49:16:15
Bennett Tomlin
Yeah. Yeah, yeah. But, like, we need to be clear that, like, the critics of the SEC would never permit an SEC that would have been taking aggressive action against FTX in July of 2022.

00:49:16:17 - 00:49:24:06
Sean Tuffy
Yeah. I mean, they sent him a letter. There were politicians that sent a letter and said, back off, FTX. Like, somehow that's been like memory holed.

00:49:24:06 - 00:49:27:03
Bennett Tomlin
And those same politicians come

00:49:27:03 - 00:49:48:18
Bennett Tomlin
November 15th or whatever a couple days after they declared bankruptcy, sent another letter saying oh you were meeting with this guy but didn't sue him. Are you in on this Gary Gensler like there was no and there was no enforcement that the cryptocurrency industry was going to accept from Gary Gensler, a single case was too many cases for them.

00:49:48:18 - 00:49:50:17
Cas Piancey
Sure, I agree, I think, but I think.

00:49:50:17 - 00:49:54:13
Cas Piancey
That there is a it's the it's similar to like the.

00:49:54:15 - 00:49:58:22
Cas Piancey
I think the anger people felt after Enron or after Bernie.

00:49:59:04 - 00:50:00:17
Cas Piancey
Right. Where like.

00:50:00:19 - 00:50:09:23
Cas Piancey
I mean Bernie is the best example probably where you, where you know, the SEC literally investigated him multiple times and was like, oh, everything's fine, I guess where.

00:50:09:23 - 00:50:13:05
Cas Piancey
You're just like, what are you guys doing?

00:50:13:07 - 00:50:14:07
Cas Piancey
And I think.

00:50:14:09 - 00:50:22:23
Cas Piancey
That if you, if you want a regulator to behave like a regulator and actually stop fraud, then that is a valid criticism. Like, yeah, you.

00:50:22:23 - 00:50:30:05
Cas Piancey
Should have been looking into FTX in This American and his weird arbitrage practices, and you should have been looking at that for sure.

00:50:30:07 - 00:50:31:16
Cas Piancey
But like it.

00:50:31:19 - 00:50:37:11
Cas Piancey
Alternatively, you're right. The crypto industry, anyone in the in the cryptocurrency industry saying, yeah, why didn't he.

00:50:37:11 - 00:50:40:12
Cas Piancey
Catch FTX is blowing smoke up your ass? Because they they.

00:50:40:12 - 00:50:44:21
Cas Piancey
Wouldn't have wanted him to anyway. So I that's fair. But I think anyone who wants.

00:50:44:23 - 00:50:45:07
Cas Piancey
Good.

00:50:45:07 - 00:50:48:03
Cas Piancey
Regulation, that's a valid criticism because it's like.

00:50:48:03 - 00:50:50:19
Cas Piancey
Why why didn't you catch something like that? Like what?

00:50:50:22 - 00:50:54:11
Cas Piancey
Why why not? You know what? What are you guys doing?

00:50:54:11 - 00:51:16:02
Sean Tuffy
I don't want to go too far down the FTX rabbit hole. But I will just say that FTX US still hasn't really been charged with anything, which I find mind blowing. Like I don't understand how FTX Bermuda is obviously criminal and but Ftx's U.S. has no no members of FTX have ever faced any serious charges.

00:51:16:04 - 00:51:16:09
Sean Tuffy
As

00:51:16:09 - 00:51:22:18
Sean Tuffy
far as I know. But I think part of it I think your point about, you know, you did see the same anger at the SEC when that

00:51:22:18 - 00:51:24:21
Sean Tuffy
blew up, like when big frauds happen,

00:51:24:21 - 00:51:29:12
Sean Tuffy
the regulators are always getting it back because it always everything always looks better in hindsight. I mean, everything

00:51:29:12 - 00:51:33:06
Sean Tuffy
looks obvious in hindsight. So in hindsight that courses was criminal.

00:51:33:08 - 00:51:43:10
Sean Tuffy
The Madoff's bags. The SEC did investigate the good. It actually bothered to check the DTC codes. You know like so there are some like really simple oversights. But I think if you go to bring it sort of

00:51:43:10 - 00:51:53:16
Sean Tuffy
full circle ish, you know, we can bring this FTX into the CFTC SEC part, like, you know, remember, like the CFTC was within like a hair's breadth of

00:51:53:16 - 00:51:58:01
Sean Tuffy
approving SBF self clearing for FTX, which would have been

00:51:58:01 - 00:52:01:03
Sean Tuffy
a major shift in policy because a lot of the frictions we have

00:52:01:03 - 00:52:04:20
Sean Tuffy
in the financial infrastructure, they're intentionally sort of firebreak.

00:52:04:20 - 00:52:30:23
Sean Tuffy
So you can't, you know, do fraud as easily. And you know that that was dangerously close to being pushed through because the CFTC was easier to lobby than the SEC at the time. And this is back to where we, you know, opened up here. One of the reasons heavy single market securities market regulator would make that sort of regulatory arbitrage a lot harder to pull off, you know, and I think that's really ultimately the case.

00:52:31:01 - 00:52:41:21
Sean Tuffy
It's still the case, the merger still exist. And, you know, we can look at the FTX thing and say how the CFTC actually could be more aligned. I'm not sure they want to court it quicker. But you know, SBF might not have

00:52:41:21 - 00:52:47:06
Sean Tuffy
been as pervasive and persuasive in his sort of lobbying efforts with the CFTC.

00:52:47:06 - 00:52:49:11
Cas Piancey
That's a great way to to round that out.

00:52:49:11 - 00:52:51:02
Cas Piancey
Sean, thank you for joining us.

00:52:51:02 - 00:52:57:10
Cas Piancey
That was a fun conversation. And I'm I'm looking forward to,

00:52:57:10 - 00:52:59:00
Cas Piancey
no more regulation any more. It's

00:53:01:04 - 00:53:05:08
Sean Tuffy
Well, thanks for having me. It was a good time. It's fine. You know, it's always, you know, you interact with people,

00:53:05:08 - 00:53:10:22
Sean Tuffy
online and text based format forever. It's nice to finally see and talk to people. Tthanks for having me.

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3 responses to “Episode 161 – Is there one good regulator between the SEC and the CFTC? (feat. Sean Tuffy)”

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