After Rejecting Bitcoin ETFs, Former SEC Chair Clayton Joins Fight For Approval

As SEC Chair Gary Gensler announces his rulemaking agenda, his predecessor Jay Clayton is working in some of the very sectors and investments that his commission failed to act on during his tenure.

One River Asset Management, where Clayton serves on the board, recently submitted a registration statement for One River Carbon Neutral Bitcoin Trust. The proposed exchange traded fund seemingly checks all the boxes on popular investing trends. It is the latest attempt to get approval for an elusive Bitcoin ETF, after several previous proposals were rejected during Clayton’s tenure as well as the latest in a long string of offerings selling themselves on their environmental bonafides under the ESG designation.

During his four-year chairmanship, repeated attempts to gain approval for a Bitcoin ETF failed. And despite the protestations of activists in and out of the financial services industry, the commission failed to act on ESG disclosure regulations and even moved to weaken that sector’s momentum with a proposal to restrict ESG consideration in retirement accounts.

“He’s no longer a government official, he needs to earn a living to pay for his fancy Manhattan apartment and you’re not going to get paid for being neutral on these topics,” Adam Pritchard, a professor at the University of Michigan Law school says. “People are hiring you to be an advocate or endorse what it is they’re doing or lend credibility. So if you’re monetizing your reputation, you’re going to have to pick a side.”

No doubt Bitcoin and other cryptocurrency enthusiasts will be happy to have the former SEC chair on their side but Clayton is not the first to make this leap through the proverbial revolving door of government and private industry.


That maneuver was also made by Ben Lawsky, who went from New York State’s first Superintendent of Financial Services, making rules around crypto licensing, to advising Bitcoin funds. Clayton was also preceded by former Commodity Futures Trading Commission Chair J. Christopher Giancarlo who went from making regulations around the classification of digital assets to being hired through his work at New York-based law firm Willkie Farr & Gallagher to write briefs on behalf of Ripple, the creator and largest holder of the world’s fourth largest coin, XRP.

Clayton resigned from the commission in late December after former President Donald Trump lost the election, a customary move when there is a change in administration. His tenure as chair was regarded as quiet, with Regulation Best Interest being the sole major action during his time as chair. Even that was necessitated by the vacation of the far more prescriptive Department of Labor Fiduciary Rule shortly before his tenure.

Aside from that, the commission was relatively inactive in rulemaking as a result of the deregulatory agenda trickling down from the White House that was also felt at other prudential agencies, including a nearly complete sidelining of the Consumer Financial Protection Bureau.

Clayton has been active since his departure, joining not only the board of One River Asset Management but also private equity shop Apollo Global Management APO , getting involved in many of the investments his commission failed to take action on, or worse, actively tried to weaken.

It does not take much to upset the public when it comes to the actions of former public officials, with concerns that those who wrote regulations are likely to have the most intimate understanding of the loopholes, creating an unfair market advantage.

Pritchard expects the majority of outrage at the latest instance of the oft-maligned revolving door to be “the usual suspects,” specifically naming Senator Elizabeth Warren, the founder of the aforementioned CFPB as part of the Dodd-Frank Act.

The crypto craze is not the only area where Clayton has seemingly switched allegiances since leaving the commission.

In the early days of the meme stock frenzy that took Reddit and Robinhood by storm and eventually would become associated with Gamestop GME and AMC, investors pumped up the price of Hertz. The rental car company had filed for Chapter 11 bankruptcy and when they attempted to capitalize on the groundswell of stock purchases by issuing more shares, the commission under Clayton put a stop to it.

While Pritchard described much of Clayton’s tenure at the commission as “low profile” he said the Hertz move was uncharacteristically aggressive.

Last November, just six months after that saga, Apollo Capital Management affiliate Athene USA, where Clayton now serves on the board of directors, offered financing to Hertz to the tune of $4 billion that was confirmed in bankruptcy court later that month.

Pritchard points out that the SEC chairman’s salary being under $200,000 means that they need to find income after their tenure. He is skeptical what regulations can change this reality and stop the next Jay Clayton from taking similar sources of income after their tenure is finished, even with rules around cooling off periods as they currently exist.

Jay Clayton and Apollo Capital Management chose not to comment on this story and One River Asset Management did not respond to requests for comment.


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Is Coinbase’s IPO A Wake Up Call To Crypto-Luddite Brokers?

Last week, when Coinbase, America’s most popular bitcoin brokerage, went public it ended the day with a 30% gain, good for an impressive $86 billion market cap. That’s more than double the market cap of venerable BNY Mellon, whose roots go back to 1784.  In some ways the stock offering was a coming out party for bitcoin and cryptocurrency investing, which has long been dismissed by many on Wall Street as fool’s gold.

But Coinbase’s IPO— and bitcoin’s 700% climb in the last 12 months— has finally captured the attention of the $7 trillion-plus wirehouse brokerage industry, which until recently has restricted clients from investing in digital assets. Well-heeled clients are now demanding bitcoin as an investable alternative asset and wealth managers are loathe to be typecast as the luddites of the blockchain age.  

Many of the largest firms on Wall Street have already made pronouncements both publicly and privately about their intentions to start working in the digital asset space. Despite that, none of the major firms, including Morgan Stanley, UBS, Goldman Sachs and BNY Mellon would offer any advisors or executives to speak to Forbes on the record about their approach and intentions with regard to cryptocurrencies.

Last month it was widely reported that Morgan Stanley MS told financial advisors in an internal memo that it would be launching access to three Bitcoin funds. The wirehouse would only allow it for wealthier clients with aggressive risk tolerances and at least $2 million of assets in house.

BNY Mellon first made news on the virtual currency front in February, announcing that it had formed a new team to develop a platform to custody and store digital assets before investing in start-up Fireblocks as a potential partner in that pursuit.


Goldman Sachs GS recently named Mary Rich global head of digital assets within its private wealth division and is looking to offer clients access in the second quarter of this year. That move was prompted by clients going on their own and investing in the new technological advancement without their advisors, according to Bloomberg.

Citi Private Bank CIO David Bailin said that Bitcoin can be part of the “opportunistic side” of portfolios in an interview with Yahoo Finance, adding that the asset will do well based on its outsize level of interest but that he has some fundamental fears.

JPMorgan JPM sent out a report on the risks and opportunities of crypto investment to its private banking clients, who are required to have a minimum balance of $10 million, in March of this year.

Despite the explosion of interest, some investment firms are still wary about getting involved. HSBC is reportedly barring clients from investing in the Coinbase IPO as it maintains a hardline policy of avoiding digital assets. This steadfast avoidance is perhaps owed to fears around anti-money laundering and know-your-customer compliance issues. While Coinbase has stocked up on staff to shore up their practices on that front, HSBC is still reeling from a $1.9 billion fine and ensuing reputational damage from its own 2019 money laundering scandal settlement.

“Clients started asking us about cryptocurrency a couple of years ago, we gradually built up our knowledge base and looked for ways that we could recommend ideas to them to access the space,” says Ted Katramados, director and associate portfolio manager at TAG Associates, a New York-based RIA that manages $8.6 billion. “Where we’ve come out is educating them and recommending actionable ideas.”

Katramados says that his firm is in the “stay rich business, not the get rich business” which has colored their approach to the volatility of cryptocurrency in the past, with the sector far more associated with quick windfalls. However, with growing client interest, the entire financial services industry has been forced to open its mind to how to approach the ascendant world of digital assets.

While there are several strategies for high net worth individuals to access the cryptocurrency market, TAG Associates doesn’t currently recommend for clients to go long on the investment by putting money into specific coins through platforms like recently IPO’d Coinbase or other custodians and brokerages that offer access. The unclear price future makes it difficult for TAG and other advisors to recommend it.

“Frankly, if you ask me where the price of Bitcoin will be a year from now, it could be double, it could be half, probably with equal probability and that’s simply not a game that we’re willing to recommend to our clients,” Katramados adds. “If they want to do it on their own, that’s one thing, but that’s not something that we’d recommend.”

In lieu of that strategy, Katramados and TAG have looked to a “second order or second derivative way to play the crypto space.” That has taken the form of investing in hedge fund strategies around arbitrage. Several of the funds they have chosen along those lines look to profit off of the price difference between the tokens and Bitcoin trusts and futures.

“What we like about this strategy is that the potential still exists to make pretty high returns, yet you don’t have to take the directional risk,” he says. The reason these opportunities exist, according to Katramados, is that this nascent market with lots of retail trading has greater inefficiency than in other more established sectors with more institutional presence. Additionally, the outsize volatility of cryptocurrencies creates more opportunities in arbitrage or similar value strategies.

“When you add all that up you have an opportunity to still make very good returns, with a fraction of the risks that you’d be taking if you just made a directional bet on the price of Bitcoin, for example,” he adds.

Katramados expects to see further adoption and embrace of cryptocurrency across wealth management and has seen that slowly emerge over the past year and a half.

The IPO of Coinbase last week marked a major milestone for the entire digital asset space, according to Katramados, who describes it as “a watershed moment that you can point to, it certainly gives it more credibility for sure. It makes people stand up and take notice and take the space more seriously.”


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A Surprise Winner From Coinbase’s IPO? Rapper Nas

Rapper Nasir Jones, known better as Nas, has emerged as an unlikely winner in today’s Coinbase IPO. An early investor in the company, the rapper’s stake is worth at least $40 million. The cryptocurrency exchange was valued at $99.6 billion today when trading began and reached a valuation of over $100 billion in minutes.

Jones’ QueensBridge Venture Partners was an early backer of Coinbase, joining the company’s $25 million Series B round in 2013. His firm invested between $100,000 and $500,000, its typical amount. (QueensBridge wouldn’t confirm the specific amount.) That round valued the company at about $150 million according to Pitchbook—less than 1% of its value today. 

At the time of the investment, shares of Coinbase’s Series B were worth $1.00676, meaning Jones’ firm would have between 99,239 and 496,642 shares, according to CoinDesk. At the share price of $415 that the stock reached minutes after trading began, those shares were worth between $41.2 million and $206 million.

“Long crypto forever…. in sickness & in health,” Jones tweeted this morning, just hours before Coinbase started trading. 

When QueensBridge invested in Coinbase, cryptocurrency was still a nascent industry and presented sizable risk (it still does, to be fair). Other major cryptocurrency exchanges like Gemini and Stellar had not yet been founded. Coinbase’s other investors include top-tier venture firms like Andreesen Horowitz—whose cofounder Ben Horowitz is a friend of Jones—and Union Square Ventures. Other celebrities, like basketball player Kevin Durant, have also invested.


Jones’ venture capital portfolio expands beyond just Coinbase. Named after the New York housing project where he grew up, QueensBridge has invested in more than 100 companies, including Casper, Dropbox, FanDeul, Parachute, Lyft LYFT and Genius, since the rapper founded it in 2013. QueensBridge also invested in smart doorbell company Ring in 2014; it sold to Amazon AMZN for $1.1 billion in 2018. Jones, himself, pocketed at least $25 million from the transaction.

“There wasn’t a time when [rappers] didn’t think about investing,” says Nas. “It just so happens that the world is opening up,” Jones told Forbes in 2018.


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Gary Gensler Confirmed As New SEC Chair As Agency Tackles GameStop Saga, ESG Boom And Cryptocurrency

Gary Gensler, the recently approved chair of the Securities and Exchange Commission, will have his hands full as he looks to tackle the key issues of the moment including ESG investing, cryptocurrency, order routing and a fiduciary standard for brokers.

Gensler, who previously served as chair of the Commodity Futures Trading Commission, was approved by the United States Senate on April 14 after a delay . Industry sources say he brings a reputation as an “extremely active regulator” having made it clear in his nomination hearing before the Senate Banking Committee in early March that additional disclosure requirements will be key to his approach to these pressing issues.

Kirkland & Ellis partner Norm Champ says that increased disclosure around ESG investing should be expected following the recent announcement of a Climate and ESG task force at the SEC led by Acting Deputy Director of Enforcement, Kelly Gibson. Champ expects more onerous requirements for companies to disclose how they are handling climate risk as well as diversity. While ESG investing has exploded over the past decade, there has been scrutiny over a lack of oversight of late as its popularity continues to swell.

Gensler will bring experience from his career in academia to bear, coming to the SEC from the Massachusetts Institute of Technology Sloan School of Management where he was a professor of the practice of global economics and management. He also served as co-director of a fintech group at the school as well as a senior advisor to the MIT Media Lab Digital Currency Initiative in between his two stints running financial regulators.

The financial services industry is still looking for a cohesive approach on the categorization of digital assets, which depending on the regulatory body has been considered a commodity, property, currency and a security.


While issues like ESG and cryptocurrency have been building in prominence and were certain to be top of mind for the next chair, the GameStop stock rally earlier this year fueled by Reddit thrusts issues around online brokerages and order flow onto Gensler’s docket.

He will also be the latest head of the SEC to tackle the longstanding search for a clear fiduciary standard for financial advisors and broker-dealers that has been kicked back and forth between the SEC and the Department of Labor for a decade. He will likely work on that issue with Martin Walsh, the former Mayor of Boston who was confirmed as President Joe Biden’s pick for Labor Secretary last month.

The question remains whether he will strengthen the current law of the land, Regulation Best Interest, through an increased disclosure requirement or take on the larger task of reopening the longstanding debate by taking another look at the definition of fiduciary duty.

When Gensler ran the Commodity Futures Trading Commission he was active in rulemaking, issuing more than 40 rules and only having one struck down by the courts. Many of the issues he is set to tackle were already on the radar of the SEC under Acting Chair Allison Herren Lee. The exam division featured ESG, climate risks and Reg. BI compliance in its 2021 priorities released earlier this year. Lee said the commission plans to look at order flow payments in a Feb. 25 response to a letter from Senator Elizabeth Warren.

For now there is not much worry in financial services about the new leadership at the SEC, according to Champ, who spent nearly five years at the SEC serving as director of the Division of Investment Management, deputy director of the Office of Compliance, Inspections and Examinations and the associate regional director for examinations in the regional office located in New York.

If Gensler surprised the industry by proposing the types of regulations championed by the likes of Senator Warren or others progressive lawmakers, it could cause panic, Champ admits. “People are taking a wait-and-see approach,” he says.

That being said, Champ says that he is a contrarian when it comes to the narrative that there will be some seismic shift in SEC presence between the previous and current administrations. 

“Yes, the Trump administration was deregulatory but from an enforcement and examination perspective, the SEC was incredibly active over the last four years. It is really a disservice to the staff to say otherwise,”  Champ adds. “This narrative that there’s going to be some big change in examination and enforcement is way overblown. There will certainly be more rules, but from the policing perspective the SEC has been pretty darn active.”

However, one area where Champ expects to see a large change from the previous regime is the reemergence of the Financial Stability Oversight Council, created in the aftermath of the financial crisis as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, in order to identify and monitor excessive risks in the U.S. financial system. Gensler was active in supporting the council in his time at the CFTC and Champ concedes that the group housed within the Department of Treasury has been “dormant” over the past few years.

His advocacy for a revival of FSOC will be aided by the Consumer Financial Protection Bureau, another agency created by Dodd-Frank that is likely to see a revival under the current administration. President Biden has nominated Rohit Chopra to the post, an acolyte of Senator Warren who helped create the bureau. The head of the CFPB, along with Gensler’s last two federal posts, chairs of the CFTC and SEC, are among the 10 voting members on FSOC.

During his confirmation process, Gensler has not indicated his preferences to lead the five largest division within the commission, the Division of Enforcement, the Division of Corporation Finance, the Office of Compliance Inspections and Examinations, the  Division of Trading and Markets and the Division of Investment Management. Once he is confirmed, Champ expects names to emerge for those posts and with that more clarity about the tenor of his tenure.


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