(President Kurt Schmoke) I certainly appreciate this great turnout on a wonderful day here in
Baltimore. We want to thank our
guests, Securities and Exchange
Commissioner Michael Piwowar for being
with us today. This is an important
dialogue, a joint program between the law
school and our Merrick School of
Business. We also want to thank Professor
 Piwowar for his extending the invitation,.
And also as some of you may know he
worked at the Securities and Exchange
Commission for a year that the underscoring of
the idea here of knowledge that works
and we do appreciate it very much. This
is an important dialogue as you know.
Commissioner of Piwowar has a very
interesting background in both as an
academic and as a public servant having,
worked on the hill as well as working on
the executive branch and it brings a
great deal of experience to this whole
issue of what we're doing in the
regulation and the financial sector. So I
will turn it over to our Dean of the
Merrick School of Business, but once again
I do appreciate this turnout and thank
you very much Commissioner for being with us today, Murray!
(Dean Murray Dalziel)  So thank
you very much President Smoke and I want
to welcome everybody  to the session,
introduce you to my my fellow Dean, Dean
white, and particularly to our guests a
commissioner peeve of our from the
security Exchange Commission. The way
this is going to work is that, you know
the reason  we're up here,  saying
earlier this is my favorite furniture
it's a bar stool,  we're gonna
have a sort of dialogue for about a
about 20 minutes half an hour and than
I'm gonna invite you to two to come in
and ask questions. Should tell you that
this is running on Facebook live at
the moment so have you have your cell
phones office as Danielle said. But text
your mother so that she can be
on this on this is as well. But because
it's on Facebook live, if you ask
questions, come up to one of the  mics .
As President Smoke said,  Commissioner
Piwowar  has a  really 
interesting background. You know he
started off as a, he does have
undergraduate from I think an international?
(Piwowar) yeah?
(Dean Murray Dalziel) It was from a from
Penn State,   but he's an MBA, which is a
very good degrees you know, from
Georgetown, and a PhD in finance from
Penn State as well. Start off his
academic life and  as a professor of
finance and went to the SEC on a
one-year.  This is not a hint Miquel by
the way. He went to one year and
basically it's been in public policy
jobs 
you know ever since. You're a visiting
academic scholar, worked in the
private sector for Securities Litigation
Consulting Group Consulting Group, which
principle clients some of you from law
school be interested in, was actually
lawyers, and then in worked on the hill.
He was a Republican chief
economist for the US Senate committee
for banking and housing urban affairs
under a Senator Mike Crapo and  Richard
Selby and he was a lead Republican
economists on the for SEC related titles
of the dodd-frank act, which we will have
a chance actually turn to have a little chat about.
He's been in the FCC since
2013 when President Obama appointed him.
He was the, President Trump did appoint
him as the interim director until May this year.
We're gonna cover a wide
range of topics I'm actually going to
start off with making an assumption that
you know you in this room you've got
some people who I know are real experts
on securities law and finance,
but everybody is in level  playing field.
You know, just what is the role of the SEC?
(Piwowar) So first
of all a couple housekeeping. A thank you
both very much for for having me here
today and thank to Mikhail Pevzner.
Professor Pevzner did great work for us
at the SEC. It's really a testament to
the fact that your professors here are doing
research is actually relevant to what's
going on in the policy we're on the
business world, he's done a great job, and I
want to thank for President Smoke for
that very kind introduction.
The next thing I need to do is, even though I'm not a lawyer, we are a agency primarily
constituted by lawyers and so what that
means is that anytime we speak the
lawyers make us do a disclaimer which
says, "any of the views I express are my
own, do not necessarily reflect any of
the views of my fellow commissioners or
anyone else at the Commission."  Right? So
for those of you though the lawyers in
the room you get the. (Ron Weich) I want to say well done.
(Piwowar)
thank you very much right?  And so what I
can do now is just sort of be frank and
talk about that .Right? So just a sort
of level set for folks what the SEC is
right? For those of you that heard SEC
and think that you're gonna we're gonna
talk about college football you're gonna
be deeply disappointed. It's the
Securities Exchange Commission. We are
they primary federal regulator of the
securities markets. I'll talk a little
bit what that means in just a second. And
our mission, we have a three-part mission
it is to protect investors, maintain fair
orderly and efficient markets, and
facilitate capital formation.  And so I
say we're the primary regulator of
securities markets. What does that mean?
well you know for those of you there in
the law school here and take an entire
course on what is it security, we're
gonna sort of gloss over that and assume
that for those of you that are... like... take
it from an investor perspective right?
You want to buy stock in a company or
you want to buy a mutual fund that... or an
exchange-traded fund or a bond, and you
want to diversify and hold those assets
in your portfolio.
We regulate all aspects of that. So if any company wants to offer their securities to the public,
they have to register with the SEC, they
have to file a prospectus before they go
public, and they have to file ongoing
financial statements.
Think of your quarterly financial statements, any what
are called 8k things material changes,
your annual financial statements 10ks
for those of you that are in the
business school we are a
disclosure regulator we're not a merit
regulator so unlike some securities
regulators throughout the world we don't
make a judgment as to anybody whether it
companies whether when they're offering
their securities to the public whether
or not it's a good company, a bad company,
a risky company or a safe bet. What our
job is, through our disclosure regime, is
to make sure that investors who are
making those investment decisions are
armed with the information that they
need in order to make good investment
decisions. So for example if there's two
guys that have a dog and a laptop, and
are sitting in a garage and they have a
dot-com address, they have no
intellectual property and they have no
customer or no future prospects for customers, and they want to offer their their stock,
their securities to the public. As long
as they fully disclose that they can go
ahead and do that. We don't opine as to
whether or not it's a good company, bad
company. Other countries, other
jurisdictions may, but that's how... that's
what we do our jobs right? So for the for
the companies that offer their secures
of public we regulate them through
registration and ongoing disclosure requirements.
For investors who want to
get investment advice from an investment advisor,
we regulate them they make sure
we make sure they have a fiduciary duty
to their clients and make sure that
they're putting their interest your
interest ahead of theirs. If you go to a
broker to actually do a transaction,
whether it's an online broker... eTrade or Ameritrade, something like that we
regulate them and make sure that they're
getting you best execution, and they have
other... make sure that there's other types
of requirements that either prohibit or
limit the conflicts of interest. If
instead of buying a single security you
want to buy a portfolio of securities in
a mutual fund or exchange-traded fund, we
regulate them as well to.  We have certain
disclosure requirements for mutual funds
and exchange-traded funds, we have
certain limitations on their use of
leverage short selling, what they're
allowed to invest in all those types of
things. When a transaction occurs
oftentimes it's on a stock exchange, we
regulate them. And then there's folks
called transfer, agents clearing,
all kinds of other stuff that sort of
works behind the system, we regulate them.
The public companies, one of the things
we require is that  they do their
financial statements in accordance with
generally accepted accounting principles
with the financial account Accounting
Standards Board, and we require that they
have external auditors. So think the big
four accounting firms, and we regulate
them as well to, directly and also
indirectly, through something called the
Public Company Accounting Oversight
Board.And that's where Professor Pevsner
helped us with the regulation of
those big large accounting firms. So that
sort of gives you a background in terms
of what we do and the landscape that we cover.
(Dean Murray Dalziel) So in your role... I mean what actually keeps you busy?
(Piwowar) So a lot of things right? So the SEC, we have 4,700 employees. We have... most of us are in
Washington DC, but we have 11 regional
offices throughout the United States, right.
And so when I say we regulate, we
 really do three things. One we write
the rules. So there's rules and
regulations that we write in accordance
with the federal securities laws. So
Congress oftentimes gives us broad
principles and we fill in the gaps with
all the specifics, and then periodically
through time whether there's changes in
markets or technology, we sometimes
update those rules. So we write the rules
and as a commissioner ...there are five
commissioners at the SEC... we vote on all
the rules and recommendations that are
recommended by our staff. And in that way
we're kind of like a mini legislature if
you think about it we're promulgating
rules and regulations that have the full
force and effect of law, so we're kind of
like a mini Senate or a mini House of
Representative.  The second thing we do
is monitor compliance with those rules
of regulations. So the 11 regional office,
we have a lot of compliance examiner's
that go out to the investment advisors,
and the broker dealers, and the exchanges,
and the transfer agents and.. and all the
other folks. And make sure that they have
all the policies and procedures in place
that we require them through the rules
and regulations, that they're following
all of those that the people are
properly trained, and they're just
generally following the rules and
regulations. And then the third thing we
do is enforce the rules and regulations.
And we have an enforcement staff that's
also in Washington DC and spread out
throughout the country. If our compliance
team finds that there are violations of
the law that would they recommend that
there's an enforcement action be taken,
or sometimes we have whistleblowers come to us.  Or a great source of information
about.. just ...about securities law
violations are either disgruntled former
employees, or disgruntled former spouses
who want to turn in their their spouse.
Their a great source of information for
whistleblowing with fraud and all that
sort of stuff.  And we enforce.  So how do
we enforce it?  We can go to court, and get
civil remedies,  we can do what are called
cease and desist orders, we can sense
your firm's we can discord you'll gotten
gains, which means that money that was
taken from clients we can discourage
that back and try to get the money back
to the client, we can assess penalties
for deterrence or other types of things.
We have civil authority, we don't have
criminal authority. I wish we did and
wish we could put people in jail, but we
can't. But if the fraud rises to a
certain level, we coordinate with the FBI
the department of Justice and all that.
As a commissioner we vote on every one of the enforcement recommendations from our staff.
Every Thursday like clockwork we have somewhere between 10 and 25 cases.
Think about that, how much fraud there is that's going to the markets, right?
What we do, is the staff will come to us and
make a recommendation,  "we found these
violations, and we think we should sue
them in court." And then we either approve
that or not. The five of us vote. In this
way we're sort of like judges.  Right?
Recommending enforcement actions or in
some cases will come to us is that we
found the violations, this is what we
would go after, and they've agreed to
settle, and so this is a settlement and
we think you should recommend the
settlement. And we vote on those things
as well too.  And so we really run the
gamut in terms of what keeps us busy all the above.
( Ron Weich) Let me jump in here to
first of all thank Dean Dalziel for inviting
me to participate. Welcome all of you
to the School of Law,  those of you don't
spend your days here happy to have you
here and we welcome the Commissioner.
I want to ask kind of a lawyerly question.
You spoke about enforcement, and you said "you'd like to put people in jail," but
alas you can't, you don't know you don't
have that authority. But,  how is the
decision made which cases are gonna stay
with civil enforcement under the SEC, as
you described it you seek penalty from
from someone who's engaged in misconduct,
and when does the case go criminal. When
does the Department of Justice step in how
is that line drawn?
(Piwowar) Yeah, so it's up to
the Department of Justice to make that
call as to whether something is in fact
criminal or not. And sometimes we will
get involved with the case, and we
realize that... WOW,  the level of fraud here
might interest them.  So we will reach out
to the Department of Justice and talk to
them on sometimes they find the case
first. Right?  They have white collar,
criminal attorneys that look into stuff. 
And if it involves federal securities
laws they will get us involved as well to.
We have FBI agents that are detailed at
the SEC, because they are very good it's
sort of criminal law white-collar crime
but no.. no don't necessarily know the
intricacies of federal securities laws,
and so we have an ongoing dialogue with
them as well to. And then another
dimension  is working with
international regulators and
counterparts as well to. So it turns out
the latest statistics are
the enforcement cases that we vote on
about one out of every five involve us
having to work with a fellow securities
regulator in a different jurisdiction, in
a different country. Think about that. 20%
of all fraud involving US investors
involved  us working with other
jurisdictions.  As it happens. So for
example somebody in one country
orchestrating a pump and dump scheme in
the US and then taking the proceeds and
putting in a third country, so now we
have to work with two.
(Ron Weich) Do you have a sense 
that is growing? Is the economy, becomes
more global, and the Internet is
connecting everybody?
(Piwowar) Yes absolutely for  that. So it's  growing. Exponentially in fact.
One of our biggest cases, we had one it was a Ponzi scheme that involved...
it started in Portugal or Brazil, I
forget which ones.  the other one
came to the United States, Portuguese
speaking Americans. It was a Ponzi scheme that spread over social media. So things
like Facebook ...you know Twitter and all
that other sort of stuff, and it got very
big very quickly. So not only is it
spreading but things like that can
happen, a much quicker timeframe. And so
we're always having to be vigilant.
(Dean Murray Dalziel) Let me ask you, maybe in a slight different
direction on your question on your third
accountability which you mentioned on
capital formation. Right,  because my
understanding is that,  at
least in the last five years, there's
been quite a rapid decline in IPOs, and certainly in the last 10 years,
you know the number of public companies
is almost half in the US. So you know,
where does that stack up in your agenda?
And I mean does this worry you
that trend, and is that something.
(Piwowar) Yes.  No, it worries us a great deal. One of the reasons why we haven't been
able to focus on, and you mentioned
dodd-frank in the in the introduction. So
in July of 2010 Congress passed, and the
President signed into law something
called the dodd-frank act, which is the
biggest single change in the financial
regulatory framework in the history of
the United States.  This was July of 2010,
2319 pages and people thought a lot of
people like alright well that's good it
sort of solved everything. That was the
end... no turns out that was just the
beginning, because what it did in those
pages was basically tell the regulators,
of which we're and the SEC, were with you know there's
there's there's three banking regulators,
we have a CFTC, we have a number of the
regulars. It told us to promulgate 400
new rules and regulations, which is a lot.
We were responsible for about a hundred
of them.  And for six and a half years,
until the election we got about 80% of
the way done. So think about that.
We have 20% of our dodd-frank mandates yet to
get done, but for those six and a half
years that that took up all the
bandwidth at the SEC. Right. So I
mentioned our ... you mentioned ...our three-part
mission is protect investors, maintain
fairly efficient markets, and facilitate
capital formation. That last piece we
were not able to focus on for a long
time. And as you said, the trends were
going down.  Before the financial crisis in
the sort of mid 2000s what were people
talking about, was that the u.s. capital
markets which had been the leading
capital market in the world for decades,
was our competitiveness was starting to
go down visa vie other markets, and
people were just starting to notice that
and start to think about what we could
potentially do from the regulatory
standpoint to make our markets more 
accountable. Not taking away any
investor protections, but to help
facilitate capital formation. Then we had
the financial crisis we sort of got
diverted away from that for six half
years.  Now we're able to turn back to
that capital formation.  In fact, the
president when he was a president-elect,
that's why he chose our our new chairman
J Clayton. He went to meet with him and
talked about the state of the capital
markets and said I want you to be the
new chairman of the SEC and work on this
issue. And so that's where we're finally
able to get back to that. And so, we're
doing a number of things. We're trying to
figure out what can we do with the
regulatory level to give some sort of
relief for companies. As you mentioned
there's fewer companies, it's declining,
we're seeing that private companies out
in Silicon Valley are staying private
longer. So it used to be company with IPO
when they had 200 we've got to decide at
250 million dollars whatever it, but now
you have the unicorn's billion dollar
valuations they're still private
companies out in Silicon Valley and the
question is why.Right? Is it that the
cost of going public have gone so high
that you have to be very large in order
to do that? Is there something we could
do on the regulatory front? We're also
seeing fewer foreign companies are
listing in the United States. We used to
be the listing venue of choice
throughout the world,
whereas companies would want to come
here and say look we want to bind
ourselves to good regulation, good laws,
good institutions, and then that way we
have in have access to a bigger
shareholder base. And that is the
benefits from coming here, but the costs
have maybe gone up over time. And so
we're trying, we're taking a hard look at
what are some of the costs that we can
do to try to to try to make our markets
more competitive.
here between the advantage of regulation
providing certainty and you know making
sure that companies are conducting their
business appropriately under the law, and
then the burden that regulation imposes,
some of it you know paperwork and a
burden some of a constricting activity.
Do you think there's too much regulation?
You spoke about 400 dodd-frank
regulations would you like to see us as
a country pare back? Should dodd-frank be
reformed in some way?
I mentioned we had about 20% of our
rules got to get written, and when I came
in as Acting chairman I said look we're
gonna take a pause on our dodd-frank
rulemaking. There are some provisions
that are yet to get finished in that and
Congress is actively looking at that
right now.  They're looking at the
dodd-frank act, and I sort of think of
and whether they're gonna change these I
sort of think they fall into sort of
three buckets. One is well-intended,
working well, not going to change it. And
a lot of the lot of the stuff in I think
of what's called title 7, the
over-the-counter derivatives market, this
is these these over-the-counter swaps
markets which are gazillions of dollars
worldwide, but prior to dodd-frank we
were we in the CFTC were actually
prohibited from getting any sort of
transparency into these markets. And so
it gave us authority to stand up a
regulatory regime, and it turned out
during the financial crisis a lot of the
exposures that the big banks had with
each other we're not like direct loans
but we're in the derivatives market and
so, regulatory transparency in that
market is hugely important for us to
understand what are the exposures for
banks and other financial institutions,
visa if you want us. So that's a bucket
that I, you know fully supportive of and
I think Congress isn't going to change.
The middle bucket is well intended, but
with you know six and a half years seven
years working in it, maybe we could tweak
the rules and maybe there's some
technical amendments that are involved
in that. And so, the one example there is
there's a lot of provisions that give us
regulation, regulatory authority obligations to regulating credit rating
agencies. If you think back to the crisis
you know a lot of the credit agencies
were wrong in terms of their ratings on
structured products mortgage-backed
securities and those types of things. And
so we now have an exam framework to go
in and examine that they're doing the
right things. Dodd-frank was very
prescriptive in terms of these are the
things the SEC needs to examine every
single year. They list eight things the
problem is it takes us an entire year to
do all eight, and not all eight are
important, and more importantly our exam
staff has determined that there are
probably five or six other things we'd
like to look at, but in order to comply
with the legislation, we need to do that.
So we've been asking for some technical
fixes where we say look these are the
eight we need to look at, and we just
want a comma, if applicable period, in
there so that we can make that judgment.
And then the third bucket is what the
president chief of staff, Rahm Emanuel
famously said, "don't let a crisis go to
waste." And there was a lot of things that
were thrown into dodd-frank that are
unrelated to the crisis and Congress is
thinking about actually repealing. And so
until we sort of figure out what which
where Congress is going to put things in
there we're gonna go slowly on some of
those things. That  gives us then the
opportunity to turn towards the capital
formation agenda.
(Dean Murray Dalziel) Capital formation you know the... the answers to that. Is this is.. this is
sort of following from Ron's question. Is
it is it about bringing down regulation
or is it about you know understanding,
sort of a new world of capital, ya know?
(Piwowar) It's a great question,  right. So one of the things we know is that, you know if
we if we do regulations where there's a
big fixed cost , which means that there's
just it cost a lot of money no matter
what size firm you are no matter how
complicated you are if you have to go
out and hire you know save
sarbanes-oxley 404 B is a famous example
to go out hire an auditor to look at
your internal controls and stuff, no
matter how big you are there's a big
fixed cost of that right? And... and one of
the things be mindful of is whenever
regulations have high fixed costs the
burden is disproportionately on
the smaller firms in that case. The big
firms love regulation the more
better. Why? Not only can they just
amortize the cost, but it also creates
barriers to entry,  in this case. And so
one of the things we're looking at is in
the IPO context by definition,  they tend
to be the smaller firms right. Is there
something that we could do in terms of...
we always we have a statutory mandate to
look at in terms of our rate whenever we
do regulation what is the effect on
competition, efficiency, and capital
formation. So the competition piece is
one that I focus on is there something
we could do, where we do scaled
where we do scaled regulation for the
smaller firms or could we exempt them
from certain things until they get to a
sufficient size,  or if we do something
new that requires some sort of
technological fix for compliance here,
and the cost of technology in the first
couple years is gonna be really high but
then it's gonna go way down,  can we do
staged regulation where we make the big
guys go first. They incur all the costs
and then the technology, costs go down
and then the smaller firms go. And so it's
always it's that balance that's in there
right, I think that's that's the key. But
back to your question, it was, it's
getting that balance right.
lots of ways I hear the economist 
talking here. Speaking as the lawyer in
front of the room here, I want to ask you. "
What do you as an economist bring a
different perspective to your work on
the SEC than the lawyers, one of your
predecessors famously Mary Jo white was
a United States Attorney you prominent
lawyer in New York, you in the minority
as an economist and so do you think you
bring certain things that the lawyers
don't and do you wish the lawyer saw
more your way or do you find yourself
thinking like a lawyer?
funny I mean we do have a lot of things
in common right so lawyers and
economists can answer every question
with it depends you know the answer some
just say it depends. Right? I've spent my
career working with a lot of it. When I
was at the SEC before, as D mention
here with you know working and the
consulting firm, our clients were lawyers,
I worked on the hill actually trying to
write legislation. I feel like I sort of
got an apprenticeship in being a lawyer.
And I find being in a continent answer
question it is sort of rare it's very
rare for an economist to be a
commissioner at the SEC most have been
lawyers throughout our 80 plus year
history, I'm only the third PhD economist
to be a commissioner at the SEC. What I
find is that the lens of a
economist, it helps me sort of think
through issues, and look at things. Right?
So, conflicts of interests we call them
the agency problems. Right? And so you
high principle agent problem, sort of
think of those types of things right and
then thinking through ...you know
the...effects on competition,
and sort of the barriers of entry,the
high fixed costs and those types of
things. the other there where I find, is
it's interesting, where we sort of have
different perspectives, is 
thinking of risks in the system right,
for investor protection. So the way
our regulatory regime was set up from
the beginning, was that each individual
security when they went public right, you
have a prospectus and you have a 10k, and
and you can open that up and and they
have to disclose all of the risk factors.
Right? They're heavily regulated there's,
a lot of competition, there's a lot of
R&D that may not come out. Whatever you
think of all those risks that "everybody
make sure that we that we do that," right?
And then you have securities that
potentially are just risky and you know
they just start what they are as an
economist I tend to think more of risk
in a portfolio setting. So investors hold
securities in their port... they're not
going to buy one security, right. People are
gonna buy all kinds of different
securities, right? Whether you hold mutual
funds, or individual stocks, or whatever
else it is. And then the question of then
if well,  should we allow what we call
unaccredited investors? So investors... the
average investor is at what we call an
unaccredited investor. There are certain
investors called accredited investors,
who the SEC deems as sophisticated. And
how do we define sophisticated? If you're
rich. You have a certain net worth and a
certain income then accredited investors
are allowed to invest in quote unquote
riskier securities. A lot more of what we
call private offerings. So I mentioned,
once a company goes public then anybody
can buy that. There are private offerings,
a lot of the Silicon Valley firms do
things for those of you lawyers,  reggae
offerings, 506 offerings, reg D offerings,
most investors are prohibited from doing
that under the name of investor
protection.  And as an economist I call
that into a question. I say well look
there can be securities that are riskier
that also means high expected return.  We
also know that you can add hot riskier
securities to an existing
portfolio, and the risk doesn't go up
that much because of diversification
benefits, it's what we teach in the
investment class. I mentioned you know
diversification benefits, and risk-averse
investors, and all this stuff, and the
lawyers look at me like I'm crazy on
this stuff.  But it's slowly but surely
trying to get that point across that we
may actually be serving investors more
by allowing them to increase their
portfolio holdings rather than
prohibiting them from getting this up in
my mind potentially exacerbating wealth
inequality. So that's one of the sort of
the the things that I'm on is an
economist but, you know, try ...I'm
trying hard.
(Dean Murray Dalziel)  I wonder, you know if you see that these markets themselves
these markets themselves are going to be
disrupted quite a bit and therefore it
becomes there you got a more pressing
problem yeah I would say with with
FinTech,  so I mean how do you see
the shape of that, and what do you see as
some of the challenges in that for the
SEC. (Piwowar) yeah FinTech is, it's gonna be
hugely disruptive. So FinTech is short
for financial technology, for folks they
don't know. So about three or four years
ago I was taking a trip over to Asia to
visit folks in Korea and Japan Hong Kong
and Taiwan, our counterparts over there
that we work with on various things and
you know they asked what I want to talk
about and I asked them what they want to
talk and they all said FinTech, and I
thought all right financial technology
that's just computers, right. That's all
we do not realizing that was becoming
kind of its own thing. And very shortly
thereafter... learn ...you know FinTech is 
a huge spectrum of things. Whether it's some
mobile payment systems, like m-pesa
in Kenya, or whether it's blockchain
technology or whether it's the crypto
currencies, that have sit on the
blockchai,n or whether its initial coin
offerings, or whether it's digital
investment advice that we call Robo
advisors, or marketplace lending, kind of
peer-to-peer lending and all that sort
of stuff. It's really challenging
regulators and it's actually making us
uncomfortable, which is a good thing.
Because, a comfortable regulator is a
dangerous regulator, an uncomfortable
regular is one that's constantly sort of
questioning things and it's, it doesn't
fit nice and neatly into our boxes,
regulatory boxes all the time and so
it's challenging us. And particularly on the the capital formation side These initial coin offerings.
formation side these these initial coin
offerings can I get a show of hands of
the initial coin offerings icos yeah so
for those who haven't heard it right so
most everybody's heard of sort of you
know bit coin and crypto assets Rolly
use Bitcoin just as a generic term for
that right there are folks that have
figured out how to try to use blockchain
technology and customized crypto assets,
they call them tokens as a way to raise
capital for different types of projects.
And so they will use things like they
call smart contracts on the blockchain
that basically say look give us your
money we'll give you these tokens and if
we get enough tokens and then they will
use that money for various business
development a lot of times it's in a
software development industry,  although
there's some oddball things that are out
there, and when certain things happen
these these smart contracts kick in and
then products become available and then
you can cash in your tokens for products
or services in the future,  whether it's
you know file storage or whatever else
it is in the future right. And oftentimes
they they will also say hey there's not
only can you can earn sort of profits or
money from investing in something that's
gonna be successful business, we will
create a secondary market for these
things as well too so you can buy and
sell these tokens out in the market. And
there's... it ..potentially,  is a cool
way to sort of raise capital. We're
finding right now is that there are a
lot, a lot, a lot, of people out there that
have... that are not doing this in
compliance with the federal securities
laws. So for those of you that are law
students we have this tried and true
test of is something as security or not
right I sort of glossed over and said
think of stocks bonds mutual funds ETFs
right the legal definition of security
goes back to a Supreme Court case in
1946 called the Howey test. That's one of
the ways we look at it and it was
designed for, at least back arrangements
and orange groves, it turns out it works
really really well on FinTech stuff. 
Right. Because it's a
principle based thing, and what it says is
if someone gives if an investor gives
money in something, gives money,
in a common enterprise, and it has the
expectation of profit based on the
efforts of others then it's a security.
and then you have to comply with all the
federal securities laws so it either has
to be a public offering, one of these
exempt offerings that's offered to only
accredited investors, or the third bucket
is it's illegal, right. What we're finding
is that there are not a lot ...there's a
lot of folks out there that are not
complying with the federal securities
laws, and we've brought a bunch of
different cases recently we're gonna
continue to bring cases in the space.
My fear is that the the illegal stuff, the
fraud, is just overwhelming.  What is a
potential cool sort of capital formation
mechanism, is going forward, but there's
an awful lot of legal activities, an awful lot fraud. There is, and they call them
something coins all the time. There's
file coin,is one, there's one that's
actually called Ponzi coin. You can find
this, it's a great white paper. The person
fully discloses this is a Ponzi scheme
and they have these they call them white
papers, explains it's basically a PDF document
and talks about these things, and in
there it describes what a Ponzi scheme
is, and takes 50% cut of all the money
that comes in and new investors or old
investors are paid off by new investors
and all that sort of stuff. And people
are still investing in these things, and
so it's crazy. So, there's a
potentially some cool stuff in the
capital formation side but really what's
keeping us busy right now is fighting
off the fraud. We've we're finding you
know people are not complying with the
law, we're going after the issuers ,we're
going after unregistered exchanges on
registered broker-dealers all kinds of
stuff in that space.
mundane than you know this is much more
exciting than I'm you know I was looking
at another area crowdfunding I mean that
yeah it makes it kind of funny Luke kind
crowdfunding look kind of boring yeah? In some ways. But you know,  do... have you also been
looking at you know deregulation or
regulation, or how do you see you know
crowdfunding as a... (Piwowar) Well it's actually very related. So up until Congress passed
something called the JOBS Act,
the only crowdfunding that was allowed
was sort of that people would you know
give money to a company and the
company would give them whatever that
service is.  And you know like you can
you can give the company $250 and when
they you know make this really kick-ass
hoodie sweatshirt you get one of them,
right? The company gets off the you know
off the ground on that. They were not
allowed to offer equity securities to ...to
investors, unless they complied with the
other existing laws which didn't work,
because crowdfunding is often very small
dollar amounts raised by a large number
of people. And so Congress created
something called, in the JOBS Act, a
crowdfunding title in there which
required us to do regulations to allow
for this equity based crowdfunding. 
And what that does is you know, typically
you think of us is the big public
companies, maybe some of the smaller
private companies, but now we're in the
smallest of the small thing and so we
had to write regulations called
regulation of crowdfunding. The difficult
part was that the the the statute was
very prescriptive and how we had to
write the rules and regulations.  Now, what
was interesting is on the investor
protection side, typically the our
investor protection mechanisms are one I
mentioned disclosure, right so we make
sure there's good disclosure you have to
have audited financial statements, and
the other is when there's companies go
public is what are called underwriter
due diligence types of things so the
underwriter has to go through some
diligence. Well, if you're a crowdfunding
person right if you're if you're trying
to raise you know a million dollars from
a thousand... a couple thousand people for
a cupcake shop or whatever, you're not
gonna hire you know goldman sachs or UI
or whatever to you know...it doesn't work.
So what Congress did was put in a third
piece of investor protection which is
basically limiting the amount of losses.
So it said it's a it's a sliding scale
based on your net worth or your
income.  Is that you can you can invest up
to, I think it's two thousand dollars or
less than that,  and so and you can only
invest so much in certain so many
offerings and stuff and so you limit the
downside on that.  The regulatory
framework is very very prescriptive, it's
still kind of ownerís for folks, and
we're not seeing a lot of uptake in the
federal crowdfunding space, however, for
those of you two lawsuits a particular
know that we have a system where we have
state regulation as well too,  and there
each state, not every state but many
states, have their own federal... have their
own state based crowdfunding statutes
that can differ from ours and say, and so
as long as you know someone's offering a
crowdfunding investment only to Maryland,
and investors they can opt in to
whatever the Maryland framework is and
maybe it's a better system or less
onerous or whatever it is. So and we're
seeing some uptake, some states have more uptake than others. We've done some
things to allow for regional
crowdfunding where across state lines, so
maybe DC, Maryland, Virginia, allowing
those sorts of things not getting the
federal and framework and what
we're doing is sort of looking at that
and saying what's working what's not so
maybe you get on an uptake in one state
but there's a lot of fraud, so that's
back to the the trade-off between
capital formation and investor
protection.  We've got to get that balance
right. (Ron Weich) So you think in a different direction but I wonder Dean Dalziel, should we
invite audience members to begin to... (Dean Murray Dalziel)Yeah you can have one question then... (Ron Weich)Very
good. So I wanted, asking we preparing for
this conversation we spoke about this. I
know you want to highlight some of the
diversity initiatives that the
Securities and Exchange Commission has
undertaken. I hope you're tremendously. I
mean we're so impressed and proud of the
diversity at our University,  and you look
around this courtroom and you can see
the range of students who are here and,
faculty members. Very deeply diverse
school in many ways and I know that the
Commission has traditionally not been as
diverse and it's something that I know
that you as a commissioner we're
concerned about. Do you want to say a word about some
of the efforts that you've undertaken to
remedy that? (Piwowar) Sure, right. So the SEC has
sort of had a tradition of trying to
promote an enhanced diversity at the
Commission and in various jobs, right. So
we have mostly lawyers accountants and
economists right we're trying to make
sure that we get representative we have
an Equal Employment Opportunity office
in there that looks at that but we've
also do things to go beyond that to
promote diversity we have what are
called employee affinity groups, and so
we have things like the African American
Council, I happen to be the sponsor of
the Asian American Pacific Islander
Committee, we have a Veterans Committee, a Women's Committee, and LGBT committee, and we do a number of events
and we do a number of events and what it
does is it allows folks in a big large
we have 4,700 employees, to sort
of find like a smaller group a smaller
Niche of folks
that have, you know, commitment to
diversity.  We do a number of events.  We
have speakers that come in you know that
we have different heritage months so we
had last November we had the Secretary
of Labor, Secretary Acosta, who you know
came in and talked for Hispanic Heritage
Month, we had early a couple weeks ago we had a Lunar New Year celebration which
was cool, the food's always great on
those types of things so that's great.
and we have a number of other events we
have leading authors come in and talk
about books and all that stuff.  And so, 
we've been always trying to do that
ourselves, right.  Now dodd-frank, one of
the things that it did, was it there's a
section in there I think it's called
section 342, which required all the
financial regulators to stand up what's
called what we call omlie, offices of
minority and women inclusion, and part of
their mandate by the statute is to not
only promote and enhance diversity at
the regulatory agencies so it's not only
us, but all the federal financial
regulators, the three banking raters, the
Federal Reserve, the FDIC, the OCC, the
Consumer Financial Protection Bureau, OFR,
the CFTC, US ,FHFA. In to do those things,
we were able to wrap sort of all kind of
the stuff that we were doing in there.
The other thing it does, is to actually
try to enhance and promote diversity
into our regulated entities as well too.
So think of the investment advisors or
the investment banks and the broker
dealers and that sort of stuff. And so,
they have a number of initiatives
pointed out as well too and then one of
the other thing it does is require us to
do outreach in terms of trying to get
people interested you know for
recruiting and stuff, and and speak to
folks about thinking about careers in
public service. And so, for those of you
accountants, and economists, and lawyers,
if you hadn't thought about a career in
public service, I encourage you to think...
too.. you know go.. to go to the different
websites that you see and you know click
on employment opportunities and see that
there's all kinds of really cool jobs
that are out there for folks,
particularly for you know for folks who
want to go into securities law. You know
you can go to a law firm and you can be
an associate and work your you know 80
to 100 hours a week and you know, roll
the dice and maybe try to get... you know
be a partner someday on
and you know and maybe not.  Or you can
join, say the SEC, and we have we hired
people into enforcement and compliance
the rule writing pieces as well too, and
you get to work on really cool projects.
If you want to work 80 hundred hours a
week, and you really want to try to climb
a ladder you can do that, if you want to
just put in your 40 and that's it, you
can do that too.
What the ...what the federal
government public service allows you to
do, is  to sort of choose the
work/life balance that you want to have
in that.  And so, for those of you that
have not even thought about careers in
public service you might want to check
that out.  It's kind of a it's kind of a
cool way to go.  (Dean Murray Dalziel)  So any questions? Can we get a  mic for this gentleman?
Were waiting on Facebook ..yeah yeah we want you on TV .
made about working at the SEC do they
follow the standard government GS
ratings no we have our own pay scales
okay could you talk to that engine yeah
(Piwowar )So well with ...five exceptions.
The commissioners, we don't get paid as
much as the people who work for us
actually.  We're under the executive pay
scale which is interesting. So oftentimes
when I'm meeting with lawyers in there,
I'm the lowest paid person in the room, 
but it is what it is.  No, the SEC has its
own, what's called an SECpayscale, and
it generally has higher salaries. In fact
it does in fact have higher salaries
than the GS scale. Some of the other the
banking regulators have their own scales
as well too. Some of the other
regulars are not subject to
congressional appropriations, so they
have more flexibility in that. So you can
check in check into that. And so, it it's
it generally follows sort of the the GS
scale in terms of, if you're familiar
with that, sort of the numbers and whose
supervisors and who is not and the
different steps that are involved and
grade and all that sort of stuff but
they generally higher numbers and that's
it's called the SK scale and you can
find that online and sort of see what
those numbers are.
(Audience) Hi sir, I have a question about the private placement.
So I've learned that you people have minimum regulatory requirement for private placement.
Is it because it's just a small amount of
investors? Because a individual can go
for private placement and I see the
importance of being regulated. Don't you
think that investor whose going through
the private placement also has to be
regulated by you people?  Because you
say it you don't have to be regulated by the SEC.
so private placements as
opposed to going public, right? And that's
where we divide up the world into... for
investors that are allowed to invest in
private placements, generally have to be
accredited investors, right. That was that
sort of level of sophistication, which we
sort of define, if you're rich or not. But
you know the idea there is that if you
have the means to actually hire someone
to help you to be more sophisticated
right. And so,  the trade-off is that more
sophisticated investors supposedly are
allowed to invest in these, only we're
limited to that because there is less
disclosure requirements, right? So now for...so companies have to make a choice, right?
If they can do private placements
only and if they have, think they have
an investor base in fact in Silicon
Valley, it works quite well. There are
billions and billions of dollars that
are flowing through there. Whether
they're sovereign wealth funds, our
accredited investors, large and pension
funds endowment funds from universities
and those types of things there's more
money than they can do with
right but what we learn is throughout
the United States sort of a tale of sort
of two Americas if you're in Silicon
Valley Boston or New York City something
like I think 85% of all venture cap money which goes through placements
many times occurs in those
three places wait that means that there
are other places throughout throughout
the United States that don't have access
to those investors and so
for them it might be worth it for them
to incur the cost of doing the
additional disclosure requirements
hiring the additional lawyers and then
going public and getting a higher
investment base and so that's the that's
the calculation that companies are making.
(Audience) commissioner I'm Joel Morris I
teach finance I'm Dean on your right
Cramer has been I think in an unfounded
way publicly critical of the VIX complex
and he has criticized the SEC for
approving some of the exchange-traded
funds in that space I was wondering if
you could comment on
Sure, so you mean Jim Cramer yes yes so a quick story for those everybody Jim
Cramer is they gotta yells on TV a lot
so a few years ago I had the opportunity
to go to the White House Correspondents
Dinner and I saw him there and so I went
up to him and I said hey Jim Cramer
you turn around saying yeah and I said
hey I'm at the SEC and he stopped and I
said I know where you're doing cut it
out and he goes look like this and I
said I'm just kidding right so right so
you brought up the VIX product so the
VIX
is is it's a product that it's basically
a volatility measure it backs out what
the implied volatility is based on
trading of options and people can either
buy or sell volatility if you think that
the volatility the variance that changes
in the market are going to go up or down
right and there are some exchange-traded
products that that are priced off of the
VIX contract that's on the options
contract and some of them are leveraged
which means that they...
magnify the upside and the downside and
then the one that's been in the news a
lot is the inverse one the XIV which is
this sort of a bet on the opposite
volatility and well we had a few weeks
ago we had a lot of volatility in the
market the XIV went way down very
quickly on that right and so there's
questions about suitability for those
those types of those types of products
that are in the market if you look at
the prospectus for those for
investors to see those they say right
there in bold letters on right
on the front page it says these are not
meant to be held over multiple days. what
they are meant to be used as is
sophisticated trading tools for short
term hedges or short-term bets from
institutional highly sophisticated
investors within the day and the reason
for that is, for those of you with finance degrees,
you can actually go through and do the
math on this is that that the volatile
Leverage gets reset every day and so
it's really complicated but what that
means is that if you have something
that's very volatile, what you're buying
over a course of several days is not
actually tracking the true volatility
and you're not getting as big on the
upside is you think you're getting and
you're actually getting worse on the
downside. And so in the prospectus
we require them to put that in there.
right the other thing is I mentioned you
know is that we regulate the the
brokers and the investment advisors
right and if we find that investment
advisors or brokers are putting these
into retail accounts and then we have
brought cases in this and
they're advising people to hold these
over multiple days it's not a suitable
investment for retail investors and so
we brought cases against them saying
you're recommending unsuitable
investments or you're not
fulfilling your your fiduciary duty so
they're not meant to be used by retail
but unfortunately they are and so we
will continue to bring cases if we find
that there's that's what they're being
used for.
Dean Murray Dalziel: we should have you in Cramer
yeah he else too much so I don't forget
a word in
(Audience) good evening commissioner my name is
Barney Brown I'm second semester 1L
student
I'm also the 1L representative for the
black law student association I'm from
University to Baltimore. you touched on
my question a little bit earlier when
you talked about thin technology with
the increase of crypto codes see payment
systems how does the SEC plans have
regulate crypto currency and protect
novice investors potential from
potential fraudulent practices.
(Piwowar) that's a
great question so there was just a
hearing
I think it was losing track of time I think it
was last week where the Senate Banking
Committee brought up our chairman and
the chairman of the CFTC which they have
we you know we have the securities
markets they have the commodity markets
in the futures markets and the senators
were trying to find out from them it's
like look who has jurisdiction over
these crypto assets and if it's you know
if it's neither of you do you need more
authority do you need more jurisdiction
right it turns out that the crypto
assets their currencies themselves the
bitcoins and the like are not securities
we don't have direct regulation over
them they are commodities under the
definition of commodities the CFTC has a
little bit of insight into the what's
called the spot market just the regular
trading of these things what they've
decided to do is allow for futures
contracts to trade on to futures
exchanges on Bitcoin to get greater
regulatory insight into that market,
where the futures contracts are for
sophisticated institutional investors. We
have not yet allowed Bitcoin or any
other crypto assets to be put into a
retail product, like an ETF or a mutual
fund, yet there's one that's
currently under review with us right now.
There are others that have applied for
that sort of thing. But for us, in order
for those things to be put into a retail
product, a mutual fund,exchange-traded
fund, we  have certain standards in
their, disclosure standards, custody
standards, how do you get custody.. these
things. And then, also making sure that
these things are not easily manipulatable,
and there's a lot of volatility that's
going on in these things, right.
Unfortunately right now even though we
don't have regulation and stuff, there
are people that assume that we do, right?
They buy them on.. through wallets or
through exchanges, and I put exchanges in
quotes, and they assume oh these are
regulated exchanges and they're all
throughout the world.
We don't have authority to do certain
things... or you know if it's outside of
our jurisdiction. In the ICO context if
they are securities trading on exchange
we can shut those exchanges down. But you know, I was just over in Japan they have
a regulatory framework. They have 40, and
this was a December, they're 40 Bitcoin
exchanges or crypto currency stations. They have 70
more that want to be exchanges,  and they
have 15 they think are operating
illegally. So this is just kind of like
whack-a-mole. So, what are we doing in the
meantime? Education, education, education. 
We're putting out, we're trying, we're
warning people, were doing press releases,
we're doing joint statements for putting
stuff on Twitter's, putting stuff on
Facebook, we're trying to do all these
things. But even with that, you warn
people,  and then people will then retweet,
it and then try to sell people the thing
that we're actually trying to warn
people from on these things. It's like,
it's like amazing.  So right now it's
as much education as we can do,
and then also trying to look at the
regulatory...  if there's people that are
skirting the law and they think they're
operating outside of our framework and
they're inside, we're gonna nail them. We
bring case... we've  had we just
suspended trading in three companies
that were purportedly big into this
thing, but we've found we just
announced that we're going after firms
as much as we can but it's a lot of
whack-a-mole right now.
(Audience) So, President
Trump recently signed an executive order
that said for every new regulation you
put into place you have to repeal - what
does that mean for the future of
regulation at the SEC and do you find it
challenging to work with? (Piwowar) Ya know its
an excellent question. So we  are an
independent agency, right? So we it were
an odd agency, right. We were part of the
New Deal legislation that FDR created, 
right.  Like I remember back in civics
class where you learned there's three
branches of government, right, that's a
lie there's. There's other sorts of
stuff where you got these independent. So
we get our appropriation from Congress,
we collect fees offset that, we are
appointed by the president confirmed by
Congress, and so but we're outside of the
executive branch, right. so anytime there
was, I was acting chairman at the time
when that came through there, was a
flurry of those executive orders, and our
question all along was,  "alright do we
need to comply with these" right? So there
was also a hiring freeze, and for that
one we were subject to because even
though we're an independent agency, the
way we do our hiring Authority is under
the executive branch ,so we were subject
to that.  The two... the one in two out, we
are not legally obligated to follow that,
right because the way it's written... it's
I had to get the general
counsel's office like, do we have to do
this, one you know, can we 
voluntarily try to do it, right.
The idea is is that there was a lot of
new regulations over the last several
years, and so any type of new regulations, 
you think about taking some old
ones off the books. We were so busy
with dodd-frank we weren't able to do
certain things. We generally
comply with, I'd say the spirit of it. So
for example, one rule that we did was, 
there's something called XBRL for those
of you that are accountants and an
economist,  it's structured data in
financial statements.  So it used to be if
you go in and look at our the filings at
the SCC's website,  so it used to be a
long time ago everything was done by
paper, right? Then it was, we got
sophisticated, we allowed people to do
ASCII files, right, and that's DOS and all this
other sort of stuff right but then
there's been technology, there's XBRL
which is like structured data like HTML
type things that you can actually link
things and tag it and all that, and so
we're starting to ...we're requiring
companies to file in XBRL. The newest
version of XBRL is what's called
inline XBR. So rather than do a separate
document,  it could actually be embedded
in the document. To an average person
it just looks like a regular document,
but the stuffs embedded in there people
can pull the stuff out and do cool stuff.
One of the things we, we did in that
rules is that we're requiring people to move to
inline XBRL, but we were able to get rid
of the old XBRL requirement, and the
other thing was we had required that
companies do their XBRL documents not
only in our edgar system but on their
own websites, and one would think that's
just copy/paste and it's not that costly.
Turns out, when you get lawyers involved,
and you get, right, accountants, auditors
involved, right, it's not just copy/paste
you got to make sure everything's ticket.
And so it was extremely costly for them
to do that second one. It makes no sense
to me ,but it's.. that's what it is. So we
were able to get rid of that requirement
as well too. So it was kind of like the
new inline x barrel in, and the other two
out.  And we're always sort of conscious
of are there things that we can do to
try to modernize.  And we've always been,
I've always been pushing, what we call
post implementation review. The world
changes all the time. What are the things that
we can get rid of outmoded
sorts of things?  And we have a
lot ...we have what's called exempt of
authority, so we can that like we do a
rule but we can exempt the small firms
or ...you know and so that's in the spirit
of that sort of thing,  it's not a sort of
a you know one for two but in the spirit.
yeah (Audience) Well, good evening ... first of all
thank you for being here ...Last week I
think you mention it
and I also saw it.  There was this meeting
between the SEC
and one of the topics about
crypto currency. At that time the
price of Bitcoin was about sixty two
hundred, sixty three hundred and, 
today I checked it about almost 12k.
Whoever invest back has already made twice their money. My question now,
well I got two questions, question number
one is, do you think that after that
meeting ... that meeting put some
confidence into the market making the
price  going up? That's the first question
and question number two is, back in
December, personally when I get into
crypto, about about fourteen thousand
coins right now about fifteen thousand,
coins I mean and I see that the number
of coins going to the market is a lot
and I would said about sixty percent of
teens are no they are not real they are
just trash, I'm sorry my language.  But my
question number two, is putting the price
I'm putting the money outside on the
side do you truly believe that there is
a big opportunity into this as a
technology? (Piwowar) Yeah, that's so great,
first question whether or not there was
a market reaction to the hearing last
week, I don't know it's a good question,
but I do know when I was acting chairman
I mentioned there's ... there's an ETF
exchange-traded fund, that's under review
right now by us. So what happened was
during my acting chairmanship, the staff
recommended that we deny it, and then the
the folks that are involved in this that
want to put Bitcoin into an ETF, they've
appealed it to the Commission so now we
have to decide it, and I can't talk about
that specific, but I do know that when
staff denied, it the Bitcoin price went
way down over the weekend, 
and man these  people they hated me.
They said it was all my fault, and I'm
supposed to be a free markets guy,  and
all this stuff, right?  And I thought was
kind of funny but then I just heard
yesterday, I guess. The person
in Korea who's in charge of regulating
Bitcoin was found dead in his home. And
so it's you know probably a heart attack
but you never know, you know I'm saying?
So you shouldn't joke about their right.
I mean... 
the community of folks that are involved
in these things are, it's all kinds of
different people, right? There's like the
hardcore libertarians, there's the cool
techy people, and then there's the
fraudsters. There's a lot of potential
money laundering stuff that's going on.
In fact there's new coins that are, I
think it's called Manero and z cash are
the two, that are specifically set up for
money laundering, right, and  all
the stuff. I mean it's just it's crazy. Theres a proliferation of
these things, right?
So I don't have any  idea which one's gonna be successful,
which one's not gonna be successful, all
out of there sort of stuff, right?  Again
that's not in our sort of framework.
What's interesting is, the the blockchain
technology underlying that, there's some
cool applications of that potentially as
well too. Whether it's in keeping track
of like auditing type things and putting
stuff on it. It doesn't.. have you ..block do
you call it a distributed ledger with
you know a immutable audit trail sort of
stuff,there's some neat sort of stuff
that maybe outgrowth of that are
unrelated to the crypto currencies. But
just know, when you invest in those
things is probably not regulated and
you're probably dealing with criminals, so. It's up to you
(Marilyn D. Oblak) Thank you for coming. Marilyn D. Oblak from the Merrick School of Business.
It's kind of going back to the Post financial crisis 2010, Dodd-Frank. Ruffly at the same time, I believe
The FSOC, was created, Financial stability oversight council.
And kind of the broader issues of systemic risk
and I really don't know what's happened
with that in terms of...I was just
kind of curious, because I'm presuming it's like the
homeland security, right? The post crisis, you have to have the organizing unit.
I'm just wondering what has happened with that post 2010, and what you see, how that fits
in terms of governmental, nongovernmental, regulatory body, which is the host?
(Piwowar) Very timely there's an
 
F sock principal's meeting
tomorrow afternoon, as a matter of fact.
So, for those of you not familiar, one of
the things Dodd-Frank did, was created
what's called the financial stability
Oversight Council. So, one of the
things that people looked at in the
crisis was that you have regulators that
are each looking at their own sort of
regulated entity, and the concern was
that nobody was looking at sort of risks
that was building up system-wide. And so,
there was a lot of debate. Would we 
create a new regulator to do this, What
do we do?  What Congress did  was
created the financial stability
Oversight Council, which is chaired by
the Treasury secretary, and is made up of
members of the chairs of all the
regulatory agencies, and so we are a
member.. the SEC is a member, of the the f sock, so are the banking regular, CFPB and then
there's some insurance folks and some
non-voting members.
And there is a staff of the F sock,
that meets regularly, and talks about
potential, you know, merging threats in
the financial system, they generate
reports, they generate annual reports, the
Treasury Secretary testifies on I think,
in fact I think it's to testify every
year, on the annual report, sort of
looking at what are potential threats
that are in the system, right. So the
obvious ones are the big banks, right, so
that's the those are the the ones that
everybody sort of knows about.  The other
thing that Fodd-Frank did was,
created what are called designated
financial market utilities, which are the
clearing agencies and the payment
systems that are systemic to continue
running, so and  they created for
the first time access to the Fed
discount window and that sort of stuff, 
and then it created the ability for the
F sock to designate certain other
non-bank financial institutions as being
sort of systemically important, and the
first place that people were looking at
was in the insurance agent in the
surgeon so AIG was kind of the poster
child, right, and there were some
insurance firms
that were designated. AIG has shrunk and
gotten smaller, and has gone through a
process of being de-designated.  They've
gotten much much smaller.
MetLife, actually sued in court, and
actually finally there was a settlement
with Department of Justice that would
get them out of the process as well too.
Prudential, is still currently the one
that's in there. They had also looked at
designating mutual funds, or asset
managers in that space, they decided to
move away from that and and not
designate these firms and move to
looking at potential activities that are
building up in the system.  Their
Dodd-Frank also created something called
the Office of Financial Research, the OFR,
there's just an article about it in The
Wall Street Journal today, about that
they were.. there was.. they're supposed to
do a lot of the analytical stuff, get the
data from there from the agencies,
and try to think about that stuff.
But it's kind of
going through some growing pains and
stuff right now. So it does meet quite
regularly talk about various issues. In
fact came out in the testimony,  I knew
this for a fact, but now it's public,
that the SEC and the CFTC have brought
up the idea of crypto currencies and
crypto assets, and do they ... not saying they do present threats
to the financial civility, but what would
be the channels are the mechanisms where
something like a worldwide collapse of
Bitcoin or whatever and maybe the answer
is we don't worry about or we do. 
But they're actively sort of thinking
about those types of issues so.
(Phillip Korb) Phillip Korb, Merrick School of Business. Could you
comment on the,  this is a hot issue some
time ago, but on the status of the
convergence project with the general accepted accounting principles
on the
international financial reporting stories.
(Piwowar) Yeah so, for those of you not familiar, there's
basically two groups out there that are
the independent accounting standards
centers one is faz B which is up in
Connecticut the Financial Accounting
Standards Board, and they're an
independent sort of standards board,
independent they're not a governmental
agency, but the SEC has basically blessed
them in terms of in order for you to
meet your disclosure requirements under
our federal securities laws as long, as
you do your financial statements in
accordance with their generally accepted
accounting principles, then that's okay.
Outside of the United States the major
organizations the International
Accounting Standards Board, the IASB and
they've adopted accounting standards for
a lot of international companies and, in
the IASB and the FASB have been trying
to work together, about they there's
differences in accounting, and the
question is can we get to one sort of
global high quality set of accounting
standards? And they've been working on
convergence for a while. And what
happened was, they found convergence in
some areas, and they found that there was
not convergence in other areas. So
they're continuing to work
together and talk.  So the SEC, there's
been people coming to us and say, " well
could you allow for IASB accounting
instead of FASB accounting."  There's a
couple different ways that we could do.
In fact, we do it.  There's a foreign
private issue or a foreign company that
lists in the United States that does
their financial statements in accordance
with IASB, they can continue doing that
and the US investors would that have...
But then the question is, US
companies, could they switch to is IASB. And
so, Ford Motor Company is one for example,
that in various times has petitioned the
SEC to move to IASB, because a lot of their
sales are overseas,  a lot of their plants
are overseas, and their revenues and
expenses and stuff could they move to
the International Accounting Standards,
and then they could also then match?  You
know, the same accounting standards that
their biggest competitors, you know like
Toyota, and Hond,a and all the other folks
as well too. And so, the SEC for a ...prior
to my getting there, said there is a
roadmap to try to figure out what we
were gonna do, and that basically stalled.
And when our when our last chairman came
in, Mary Joe White came in, she came to me and said, "you know, we haven't said
anything on this, and we  need
to say something and I'm not sure what
it is." "And I said "I agree with you on
both points. We need to say something, but
I'm not sure what it is." It's still
stalled.  Some people say, "well why don't
we just give companies the option...
you can either the FASB or IASB."
Other people worry about investor
confusion,  right?  We had our former chief
accountant came up with an idea that I
that I really liked, which is, let's
still require FASB, now companies can
choose to also do IASB but you have to
do a costly reconciliation between the
two, why don't we get rid of the
reconciliation requirement, why don't we
allow companies to file an FASB, do all
the auditing and all that sort of stuff,
and then do the international stuff in
addition, on that.  And what I like about
that, is that'll  sort of
tell us like how many companies want to
do this, it'll gauge and engage investor
demand, right?  If all of a sudden we see
that investors are demanding that every
company do IASB, that tells us one
direction we should go if we see that
it's very few, investors, care about
that? That gives us a different direction.  My
guess is we're gonna see it split among
certain industries, some industries we're
gonna see more of this, whatever.  But it's
kind of a nice little pilot program to
do what we want to do, and I've been
trying to...you know, we had a changeover
in chief accountant, and we changeover
fellow commissioners at the SEC, and so
we're trying to be trying to get folks
to try to think about that issue, but
it's an active issue and we're
still trying to figure out what to do.  In
the meantime it kind of got two sets of
standards.
(Audience) I'll come back on the crypto again.
My name is ... I'm an alumni from
UB. My question is,  last February when I
was listening to the hearing at the Senate.
J Clinton,  he wanted to badly
badly to go after the crypto environment
and all these assets, so I was wondering
how are you gonna do it. Do you have any
idea how, if you guys decide to regulate
this market, now how are you gonna do and,
one more thing that I know for sure,
because this market is kind of like
attracting a lot of money now, they went
almost 800 billion, I was wondering how
do they...because  is someone
else over there. Whatever is money, they
come first, the 
IRS... I know they will come soon they will.
They don't ..they won't even wait until it
gets deregulated to get their money back
because they're trying to get there as
soon as possible, now they're trying to
tell people, "oh if you had money by a
trading day trading, you got to pay your
tax."  How they're gonna do it?  You just
mentioned with the Monaro, which is the
privacy coin now, how do they gonna do it,
do you have any idea?
(Piwowar)As you get ready... so again we don't directly regulate the crypto assets, but there's a
lot of stuff related to that, right? So if
it gets into the banking system at all,
there's all these what they call KYC,
know your customer, right, and now all of
a sudden you got FinCEN, and treasury are
gonna come after folks for that, right.
You mentioned the IRS, they declared it
as property.  So you got to start
declaring this stuff, right.  I haven't
seen it, but my understanding is there's
these chat rooms out there the folks say, "
oh yeah they'll never catch us, or what"... I
see you're smiling so maybe you're on
these chat rooms and stuff, but forget
the name of this stuff,right?
And then you've got...you know we're
trying to make sure that we've done some
things where for example, I said I
mentioned folks have wanted to put them
into exchange-traded fund or a mutual
fund, we've had so many people come to us
with so many different things that our
Division of Investment Management put
out a basically an open letter to the
world saying, "look if you want to start
putting these things into reach
products under the FCC's regulation,
here's a series of 40 questions you need
to answer," right? If these things are so
volatile, how you gonna strike a net
asset value to allow people to trade, and
then they trade on hundreds of exchanges. What price are you gonna use, right?
We have liquidity requirements, right, how
would you classify these things, other
than the most diliquid things, because
you don't know what these do.
Custody is the big one, right, if you are..
you know an investment advisor, you run a
fund, you want to make sure those assets
are custody, right?  These things get stolen
all the time out of wallets, or exchanges,
or whatever else it is. And we have a
number of other things say,  look before
you get him into an SEC regulated
product,we need to make sure it's safety.
Then there's all the stuff that's
outside, that we don't have jurisdiction
on, all we can do at this point is warn
people, "work with our fellow regulators. "We're starting to see, in the industry I
think it was Merrill Lynch,  told all of
their their brokers they say do not
allow any crypto currencies in any
Merrill Lynch accounts for your
customers.  They said, we just don't even
want to touch it. again because of things
like, know your customer, and taxes and
custody, all this.  If your customers want to
do it, let them do it outside of Merrill
Lynch, because you know they're heavily
regulated and some... one of us is gonna
come after them.  So you're starting
and you see JP Morgan right, Jamie
Diamond said he won't allow any of his
traders to trade in any of this stuff. So
it's interesting.  So stay out of those chat rooms.
(Murray)  I think we maybe
should do it agree do you think I think
we need to do a course on
cryptocurrencies yeah?
(Audience) Good afternoon my name is Mohammad, and  Java it's a major.  You
talked about m-pesa
and when I was living back home,
we actually be transacting using mobile
banking yeah.
But recently, I noticed that most of the
bands here, uses well  regulated
procedures that  are in place for sale. And
my second question is, what technology
are you use and to catch up with in FinTech, 
because FinTech is growing, but I don't
think the technology is there for you to
catch up with them because
its going at a faster pace.
(Piwowar) Yeah, no it's 
trying to catch up. We have, as I
mentioned, it sort of keeps us
uncomfortable, doesn't fit in our
regulatory boxes, we have it we have a
FinTech task force, that's taught you to
catch up with all these stuff, right.
You mentioned M-Pesa, right, in in Kenya.
I went to Kenya a few years ago, and was
just blown away by this, right.  This is a
mobile payment system that's there, and
they have... they hav...e Kenya has higher
rates of Financial Inclusion than we do
in the United States.  Why?  Because they do
it....  M-Pesa  it's unbelievable,
right?
Why?  Because they don't.  What they did was,
they were smart.  We talked about... we don't
say Financial Inclusion, what do we say?
Unbanked and underbanked ,right.  There's
still this mindset, pre FinTech mindset,
we've got to get people into banks. No.  You
can do Financial Inclusion outside of
the banks , and it's proved it over there.
The other cool thing is, you know how
when we turn in our phones we get a new
phone and we turn in the old one and he
gets recycled? Kenya gets a lot of those,
right?  I was over... remember those old
brick phones, the Nokia brick phones back
in the day? Even the poorest of the poor
have those phones that are there, right.
And they could go to a fruit stand on
the side of the road, boop-boop-boop-boop,
do mobile payment system, right.  I'm over
there trying to use my credit card, and I
don't even know how to use the chip,
 because we're used to doing a damn
swipe thing, right, and that's 30 year old
technology. What they were able to do was,
leapfrog over, right, the technology, they
have mobile payment system, they have
cell towers everywhere, they were able to
use the technology in a smart way. And
what you see is, that it has all kinds of
huge benefits, right. So not only
inclusion, right, they have the ... the Kenyan
government's actually selling small
increments of their sovereign bonds. So
the equivalent of Treasury bills to two
people over their phones and actually
our higher rates of interest than you do
in the bans.  The other thing that's
happened, robberies have basically gone
to almost zero.  Why?  No one's carrying
cash, right?  You can't steal the
information. The other thing that's
really cool is,  that they don't have a
very strong sort of insurance market, but
there's a way for folks to be able to
help each other out, like if somebody's
you know like say there's you know bad
weather or something that it wipes out
their business or something like that,
they have family and friends that can
send them five bucks, ten bucks whatever,
it is, to try to get their business back
up and running.  It's like it's a risk,
they call risk sharing, right. So you can
kind of help each other out or whatever,
and there's ...for the stuff. It's
really, really cool technology, and what
are we doing?  We're just moving from the
swipes, to the chips,  and half the time
the damn chip things don't even work. 
It's a huge, huge market, I'm a huge
fan of this technology as a way to
actually transfer money.
The other cool thing I talked to Bob
Collymore, is ahead of Safaricom out
there, and he said there next it ..or the
next thing is that there .."the biggest
challenge for them is, people getting
access to electricity in the rural
communities."  And so they're developing
these solar powered batteries for the
phones as well to so that people get it. 
They said they were going
to try to develop them to it big enough
to actually plug in refrigerators as
well to, so that people could put
medicines and stuff that need to be...I mean
it's just like... it's transformative there.
We need to be like Kenya man.  We
got to, you've got to catch up with.
(Murray)
I get to let do the the last question,
and I'm gonna be this a sort of personal
question, you know,
you got an MBA, which its a 
great degree, and you've got a PhD, but you
know, most of your careers been in public
service. What really
attracted you to public services?
(Piwowar) It's a great question, right?  So I never
would have sort of predicted this. I ended up in public service in
various. I just sort of follow my passion. I did my research, that let me do
the SEC. I try to... I went out in the
private sector, worked at a consulting
firm, then somebody called me one day and said hey "do you want to interrupt your
various you know nice life and go work
at the White House?," and I'm like "yeah
that would be cool."
and I started in August of 2008, and was
trying to write... help.. working for the
President to write principles for
financial regulatory reform before
something bad happened.  And in September
of 2008 something really bad happened,
the global financial crisis.  That led me
to go to the 
Senate  to work on the legislation that
was involved.  It just sort of... following where
I am, right?  We do different events for
students, high school students,and
undergraduate students, as well too, and
people say well how'd you figure that's
fair?  You know, for me career has
been a... rolling series of three
to five year commitments and stuff they
just sort of follow the passion, right?
A lot of students have, what
they think is, sort of plan A in life,
right, and then when you go to you. 
For me you know getting an MBA, and
probably many of you going graduate
schools, like okay, now I'm gonna switch
and go to plan B...  I'm on sort of
plan G, or plan H at this point, and so I've
got to figure out something to do.  But
it's, you know, just sort of following
my passion, and for me it's never been
about,  is it public service is it
working in the private sector, because
you can serve people in the
private sector as well too. It's just
sort of a natural thing for me.  I'm four
years into a five-year term, at the end
of this I'll probably go back, either
into academia,  or the private
sector, or maybe some combination of the
two, and it's just sort of a way to do it. Again, it's you know you can have a
very rich and rewarding career in public
service and or you, can spend a little
bit of time there,  one year like
Professor Pevzner back there, or me sort
of from coming up on twelve I guess when
you add it all together, and the sorts of
things so just  sort of happen.
(Murray) I think this has been fantastic. I mean I think also, you know you've given us a
sort of really broad canvas of,  you
know,  both what the SEC does, but also
just what the issues are in
financial markets today. So I want to
thank you all.  I want to make you an offering. If  plan J comes around, this is a really good place, to think
about teaching.
(Piwowar) Thank you all very much
