Wall Street’s New Cop Signals More Scrutiny of Crypto, SPACs

Wall Street’s main regulator is signaling that the Biden era will spell tougher oversight for cryptocurrencies and blank-check companies, two of the white-hot market’s most talked-about asset classes.

U.S. Securities and Exchange Commission Chairman Gary Gensler on Wednesday told lawmakers that special purpose acquisition companies and digital coins posed significant policy and investor-protection questions. He referred to SPACs, shell companies that list on stock exchanges for the purpose of buying other firms and making them public, as “blank-check IPOs.”

Wall Street’s New Cop Signals More Scrutiny of Crypto, SPACs

The financial world has been anxiously waiting to see how Gensler will steer the SEC at a time when retail investors have helped drive markets to record highs. Crypto enthusiasts, who had been hoping the regulator would take a more accommodative approach to digital coins, have thus far been disappointed -- and on Wednesday they got more of the same.

“I look forward to working with fellow regulators and with Congress to fill in the gaps of investor protection in these crypto markets,” he said in remarks prepared for a House Appropriations Committee subcommittee. He raised concerns about everything from crypto exchanges to decentralized financial platforms.

During the hearing Gensler went further, adding that he wanted to bring the kind of protections to crypto exchanges that a stock investor would get on New York Stock Exchange or Nasdaq platforms.

On equity markets, Gensler discussed how the SPAC boom -- along with the surge in IPOs and direct listings -- had placed a “a lot of demands on the SEC’s limited resources.” He said that the agency has spent significant time on the issue, citing guidance issued last month for how firms should account for warrants held by early investors in SPACs.

“Beyond the real demands on SEC resources, the surge of SPACs raises a number of policy questions,” said Gensler. “First and foremost, are SPAC investors being appropriately protected? Are retail investors getting the appropriate and accurate information they need at each stage -- the first blank-check IPO stage and the second target IPO stage? Second, how do SPACs fit in to our mission to maintain fair, orderly and efficient markets? It could be the case that SPACs are less efficient than traditional IPOs.”

During the hearing Gensler signaled that private equity was also likely to get stepped-up oversight. He said he has asked staff to review the current regulatory disclosures that firms must file with the SEC and to look at the structure of relationships between asset managers or general partners and limited partners, which are often pension funds.

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