Crime and Crypto (with Dave Michaels)

[0:00:00 Speaker 1] from the Salem Center at the University of Texas at Austin. Welcome to policy and pieces. I’m your host, Scott. Bogus Gary

[0:00:11 Speaker 0] is a you know, he’s sort of reinvented himself after running a different federal agencies person who understands the nexus of technology and regulation and finance. Blockchain So you know, that’s like one of the great questions about Gary Gensler is like with the background he has. What does he want to accomplish? What problems does he want to solve in this world of Blockchain and crypto?

[0:00:36 Speaker 1] That was Dave Michaels. He covers white collar crime for the Wall Street Journal. We discussed writing about financial markets in a post truth world, priorities for the new administration and open questions about an S, E. C and Gary Gensler. We also talked about his coverage of initial coin offerings, cryptocurrencies market spoofing and the impact of media coverage on financial market behavior. My co host for today is Moody School of Communications student Ahmad. Now John. Yeah, Dave, welcome to the show. Glad to have you.

[0:01:08 Speaker 0] Thank you. Thanks for having me.

[0:01:10 Speaker 1] And welcome to my co host today, um, on a John from the Movie School of Communication hard room. Before we start, I thought I would just ask. Do you remember the first time we met?

[0:01:23 Speaker 0] I’m going to guess it was at a Brookings Institution event. Is that Is that right?

[0:01:29 Speaker 1] It was at an event it was many years ago, and I was thinking it was SEC speaks anyway.

[0:01:36 Speaker 0] He speaks like it, sort of blend together. They’re all

[0:01:40 Speaker 1] a blur. For those who don’t know what he speaks is, that’s the Security Exchange Commission’s annual meeting, where they talk about what they’ve done, what they plan to do. And so it’s a big event and reporters go there and industry goes there to try to figure out what government is going to be doing. But thereafter, for years I think you spent a considerable amount of effort trying to get me on the record to say things, and I spent a lot of effort trying not to say things, and now the tables are turned and I get to interview you. So this is kind of fun.

[0:02:11 Speaker 0] Yeah, yeah, definitely. Role reversal here. Always healthy.

[0:02:15 Speaker 1] So, Ahmad, where do you want to start? I think we should start with some describing if you could a little bit about how you ended up reporting at the Wall Street Journal.

[0:02:25 Speaker 0] Sure, I joined the Journal in 2016. I had previously been a reporter at Bloomberg News. Um, and I guess my my I’ve been covering some form of economics regulation subjects since 2000 and eight. And, um, when I went to Bloomberg News, I began specializing in covering financial regulation and specifically regulation of capital markets. I did that for a few years. And then when the Journal expanded their team in 2016 to hire more reporters with a focus on sort of that intersection of Washington government and finance, I came on board and I have been been here ever since.

[0:03:19 Speaker 1] And, um, when you went to school, was it Is this what you had in mind to be a reporter reporting on regulation?

[0:03:27 Speaker 0] Not really. I think a lot of people kind of doing, uh, careers that are maybe a little different from what they envisioned. Um, in college, I was I focused on international economics as an undergraduate student with sort of an idea in my head that I would either work in government or work, um, at one of the sort of international NGO type organization, something like the World Bank or the IMF. And, um, along the way, I picked up working for the student newspaper more as a hobby than anything. Um, but But I liked it. And when I was leaving college, I sort of applied to the same kinds of jobs that everybody applies to who has a background in business or economics and sort of as a, you know, not on a lark. But I I thought I would try to give the news the news thing a you know, a try and I to my surprise, I got an internship one summer at The Dallas Morning News in Dallas, Texas. I didn’t think I would because I didn’t have an Orthodox background and reporting as a student, I was I had much more of a background to go, um, into, uh, you know, maybe it feels like consulting or something like that. And, um, you know, I just got into news, and I just really liked it, and I decided I would just do it as a career. And I’m not sure when I made that decision, but it was probably within the first year of working in Dallas and believing that I really, really enjoyed it, and I didn’t I didn’t want to sort of leave it to do something else.

[0:05:15 Speaker 1] And were you always, uh, interested in writing about financial markets, or why did you end

[0:05:21 Speaker 0] up going in that direction? I want my direction because of the financial crisis. More than anything else, I just you know, I I That was not my focus in the beginning of my career. But when the financial crisis happened, there was demand for reporters who would cover, um and try to explain what happened in the crisis to readers. And I was working for the Dallas newspaper at that time, and I was in the Washington bureau. And so I wound up, uh, covering that story from Washington, and I will be honest. I found it more, you know, just like the most difficult thing I’ve ever covered, because I didn’t understand fixed income markets or derivatives or anything like that. And I just sort of sort of the more I learned, the more I wanted to learn. The more I realized they still didn’t understand anything, and it just sort of turned into a 12 year odyssey to try to really understand markets and how Washington regulates them. It’s, you know, I It’s one of those subjects where I’ve never. It’s one of those beats where I’ve never felt as a journalist that I really totally understand it. And it’s time to move on and do something else. It’s always changing, and markets are always changing. Regulators are slightly changing, and to me, it’s always seemed interesting to cover, So I keep covering it.

[0:06:51 Speaker 1] That’s a good way to segue to a question I have about your worldview. Or do you Do you have one, particularly on the role of regulators? And how has your career been shaped by or shape the stories you right

[0:07:07 Speaker 0] for? Um, I think I think my view of regulation and regulators has evolved, and I don’t I think it’s probably consistent with how reporters think about regulation if they cover it long enough in the beginning, as a reporter, I think one’s biases to think that regulators are there to sort of put the clamps on business and obviously to protect consumers, um, and to moderate risk, particularly risk that, um has knock on effects, uh, and and can harm the economy. And And you assume that regulators, I think, as a as a reporter early on, I you know, like many reporters, I think I assume that regulators understand how to do all this and that it’s perfectly clear to them how to do it. It’s just the choice of whether they want to do it. And over time, my view of regulators has evolved, sort of to understand that regulators are just like anybody else. And you know what? They what they know is a function of expertise and experience. Um, insight, Um, and then, you know, decision making is a whole nother thing. It requires not just, uh, knowledge. Um, but also, political will, uh, and a sort of, you know, ability to sort of judge trade offs and decide that one thing is more valuable or optimal in the moment than something else. And these decisions are just much more complicated than I. Regulatory decisions are much more complicated in my mind today than I. I sort of thought certainly at the beginning of my career. And you know, that’s not to say that I I think that regulators are should get a pass when they when they get something wrong. I fully believe in using hindsight to judge decisions that were made in the past. That’s what reporters do. In many ways, we’re kind of backward looking a lot of times. That’s sort of like the historian part of our job. Um, but you know, in the moment, um, I try to think about the fact that decisions are hard. There is a lot of pressure on regulators to to pick one course or another. Regulators have their own preferences and biases, their own set of experiences and all this stuff is just really hard to know. As a journalist, Jesus really have to keep asking questions and try to arrive at some high level understanding, Um, about what a particular regulation or crisis or or sort of campaign is all about.

[0:10:06 Speaker 1] So do you have any overarching philosophy or view of markets that makes you agree or disagree with the decisions regulators make as you’re writing a story? And does that impact how you write?

[0:10:20 Speaker 0] Not really. I thought about that a lot because I think that people in the field that I cover have those views. But I I’m not. I don’t have a particularly strong views on whether markets should be completely left alone or whether regulation should be there should be more than there is today. I don’t I don’t have really have opinions about these things because, you know, there are lessons I’ve learned. But one of them is just I’m not I am not. I don’t know enough as a reporter, you just never. I feel like you never know enough. You’re always learning, and you’re always their instincts. And there are rules of thumb. And, you know, um, there are some heuristics that you can apply to how you approach coverage of markets and what the balance is between, uh, sort of free enterprise and totally free enterprise and regulation. But but I I don’t I don’t really approach that thinking that, you know all things equal. Markets should be free of regulation or all things equal. Markets should be, you know, more tightly regulated. I I just sort of view my role as, like, you know, chronicling these decisions in the times that they happen involving the actors that I cover.

[0:11:48 Speaker 1] Do you think those you report about Thank you have a view particularly given, you know, that you write for the Wall Street Journal.

[0:11:56 Speaker 0] I think that people assume most reporters are pro regulation, um, and and their anti sometimes sort of skeptical of business. Um, and sometimes And what is a pro regulator? That I just mean that they think that some critics of journalism think that reporters default to the idea that there should always be more regulation. And, um, you know, that may be true. I actually don’t know. I’ve never surveyed journalists about that, but, uh, you know, personally, I I don’t I don’t I don’t I don’t really think that that is, uh that is relevant to sort of like where I work. I realized I work for a newspaper that is sort of the Bible of the daily sort of chronicle of capitalism. And I love absolutely love working there. But I don’t get this. I get the sense that if people think about me differently as a reporter, it’s because they might assume that I know a little more about markets and a little more about business and and the frameworks of business decisions than your average reporter. And I hope that’s true. I mean, I hope that’s true about The Wall Street Journal. I think it is. I think the people that work at The Wall Street Journal are tremendously smart and talented and knowledgeable and and and that’s really a super big. That’s like a differentiator for for the Wall Street Journal and why I think our leadership and our audience values us. Um, I still think some people I meet sometimes just assumed that a reporter is going to is going to default to the idea that there should just be more regulation.

[0:13:45 Speaker 1] You also did some reporting from Libya. So can you talk a bit about how that shapes your worldview?

[0:13:51 Speaker 0] Yeah, I was. I did this when I was like, After my first maybe nine years in journalism, I did a fellowship where I got to pick a place that I wanted to go and do some reporting. And at the time there had been very little, uh, there have been very few American reporters in Libya for a long time, so I managed to obtain a journalist visa in 2005, I think, and yeah, I went to Libya for for about five weeks and with a view toward writing about how American oil companies were approaching the re entry to Libya, and I wound up actually not having very good access to American oil companies and writing a whole bunch of different stories. But what that experience taught me. One of the things that experience taught me is just how important commerce, um, and trade is to the world. I’ve been living in a bit of a bubble in Texas, covering government and state regular, sort of like economic development and even law enforcement. And it’s been a while since I had really thought about how important trade and commerce are to the world, especially to a country that has been cut off from the world for so long and and really just really how important you know economic growth is to reviving the country like that. Obviously, Libya, Libya has gone through one crisis after another since I was there, didn’t go the way that people thought it might go in 2000 and five in the ideal sense, you know, I met a lot of small business people there. I met a lot of big business people. I met people from Big Oil companies. And for me it was like a five week immersion and just how important businesses to the world and how sometimes personally, I thought of the world through the lens of government when I should be thinking about it through the lens of economics and business.

[0:15:55 Speaker 1] That’s a good way to think about another question that we have for you. And it’s about the impact of media and financial markets and on regulation and financial policy. In particular, we know that there’s often a lot of animosity towards Wall Street by the public. The financial crisis. Major reform, like the Dodd Frank act, has really shaped every aspect of our society. Have you thought about how the media and your stories, uh, for better or worse, uh, shapes views?

[0:16:31 Speaker 0] Yeah, I do think about that. I I don’t have, like a really developed framework as far as thinking about it, but so the first thing that comes to mind is that when you know there are sort of two extremes and one is, you know, there’s been a crisis like 2000 and eight, and public policy makers don’t really know what caused it. And so the reporting that gets done in the moment is very important for framing how people think about what caused the crisis and what needs to change in so far as what the response to the crisis should target. Um, so I think in the moment that that sort of reporting is extremely valuable hole. And when you think about how fast it happens, it’s amazing how good it is, usually just because reporters are scrambling the sort of explain stuff that maybe people haven’t been paying attention to for a long time. And then you know what journalists right about any particular matter that is sensitive, particularly about the performance of a regulatory agency or a government agency or a bank or an asset manager, something they did right? That sort of doesn’t sound too good or is questionable or will draw criticism. You know, those are the stories where you you can sense when you’re reporting them, and you’re talking to people that everyone’s on pins and needles about how the story is going to come out. What are you going to? What are you going to report? Is your story going to be balanced? Is it going to cause a real storm a firestorm of criticism. Is it going to provoke letters from Congress? So you I’m aware that, you know, some of our stories can have real consequences, and therefore they have to be accurate and well reasoned. And they have to You have to understand the underlying facts of the story and economics. And, you know, you got to quote the right people, and then you got to keep in mind that, like the people you’re writing for, like your leadership at The Wall Street Journal and it places like Bloomberg like they are really smart people, and they can see through stories that are not well reported and misunderstand complex topics in law, economics and finance. And you have to be. Keep that in mind and keep pushing yourself to make sure that your actually adding value as a reporter in your stories and you’re not just looking for stories that are going to make a lot of hey but are easy to pick apart by people who really know what’s going on.

[0:19:22 Speaker 1] Do you think about that? Do you think about how your stories may affect policymakers and regulators in particular? Do you think they take actions their decisions based on what ultimately you will write about and how you write about it.

[0:19:38 Speaker 0] Well, I don’t think about that too often. I mean, I think if I think about it, it’s because I think about accuracy and I think about am I writing about the right stuff? You know, Am I writing about the biggest stuff going on or am I Am I Am I delivering a new insight that people don’t understand or haven’t thought of yet by being forward looking? So those are the things I think about? I know that if report, I believe that if reporters write a lot about a subject like maybe we’ll talk about money market mutual funds that that raises the expectation in the public that regulators are going to do something. And maybe do you know one of the Maybe do something, you know, more substantive than incremental, right? And I’m aware of that, too. So, you know, I guess sometimes that can be thought of as sort of like driving the agenda. Like if you’re delivering key insight and you’re discovering things than the public sector often has to respond, and that can be a really good thing. I mean, that’s that’s I think that’s a goal of all reporters is to deliver, You know, we call them scoops, right? But like you want to deliver, you want to deliver information to to to your readers that they don’t know about, because I also they’re buying the paper. They really want to learn stuff. And if it’s really valuable stuff, then the public sector is going to notice and maybe respond to it. You know, I think usually that’s even better.

[0:21:23 Speaker 1] That’s a good point. Do you think about whether you’re writing a story that readers need to hear versus what they want to hear?

[0:21:33 Speaker 0] Yeah, I yes, and I I think the latter I’m trying to think about in the world that I cover. That is, that can certainly be true. There are some conventional. There’s some conventional wisdom or dogma that if you reinforce it through, your reporting, will get a lot of attention, and maybe that’s valuable. Maybe the particular story justifies that, But maybe what you’ll find is, if you ask enough questions and you learn enough, then you realize that the truth is something else. It’s not as it’s not as neat and tidy, and it doesn’t reinforce the conventional wisdom. And maybe it’s even hard to turn into a story. Maybe just hard to tell us a newspaper story. But I do. I do think about that, and I think that that’s a That’s something that reporters, journalists sometimes should struggle with is Well, did I sit like, What’s my thesis? Did I set out to write a particular story? Am I open to changing my thesis based upon what I learnt, or am I asking questions that reinforce? You know what my hypothesis was? And I’m not really pressure testing, You know my story. So I don’t I don’t think you really want to write stories that to start regular what people want one and they want to read it. You want them to read it because you wanted to be fascinating, interesting and like they really want to read it. But you want to. You want to write stories that that are as accurate and as interesting as you can, right? Even if someone reads it and says, you know, you know that can’t be true. You totally got spun like you. Journalists are all the same, like you you know, you, uh you know, you can’t question that powerful person, you know? You know, we I think we all do. We all we all look for, hopefully stories that are not just what people like you said, you know, want to hear. But what? But what they deserve to know, right? As just people who are our readers and citizens and interested in the subjects we cover And, you know, like customers to write, like, pay good money to, like, read our product.

[0:24:14 Speaker 1] And in your opinion, what makes a really good story?

[0:24:19 Speaker 0] Well, I mean, there’s just an old belief in journalism that, like the best stories, just involved people that there there’s got to be like a person at the heart of your story to humanize it because we’re not We’re not writing illegal treatise. We’re not writing a textbook, so you know you need you need people and you need to tell a story. That’s I don’t mean just like a story, but like an actual has a narrative and, you know, makes the reader care about why the subject matters like i e this particular tax thing or regulation thing or investment thing affected a person in their life got changed in this way for or like you. I guess you could substitute a company for that. Two people care about companies, particularly our readers, so I try to try to think about always try to think about that. Just is there a way to tell the story? You know, through people, because that’s I think that’s fundamentally what many of us relate to.

[0:25:26 Speaker 1] Do you? Do you think about who the person is on the other side? Who was reading the story? Are you writing to somebody or to a particular audience? Do you picture what they look like? And if so, what do they look like?

[0:25:40 Speaker 0] Well, yeah, I mean, that’s like a question of almost about, like market segmentation and how the Journal thinks about are different readers. And I’m sure there’s I’m sure there’s all these different segments of the market that our marketing people have have devised and try to target and, you know, want to get their business. But I don’t I just sort of think about the journal. The reader that I’m writing for is like a like a smart person, like a really smart person who is taking the time to read a story about finance or the regulation of finance because they care about it and you know they’re interested in learning more. Or maybe they have to read it for their job. And therefore they’re just, like, really, really knowledgeable anyway, you know, so they can. They have a set of experiences and a background that predisposes them to sort of read the kind of stuff I write. So, you know, I guess I guess I think of myself sometimes as writing for like, some of my stories are for professional readers, like people who work in this world. But I don’t want that to always be the case. I wanted to be the case that everything we write about it is interesting to every single person, and that may or may not be possible. I mean, that’s that’s what journalists want. That’s not really always how people live their lives. But, you know, if it just if the story hits with a certain kind of reader like that smart, business minded journal reader, you know that’s our core audience. Those people, our customers like I’m cool with that. I think we want to keep. That’s what I have to keep in mind is like, you know what those readers are interested in learning about?

[0:27:29 Speaker 1] So you’re not writing to your third grade teacher?

[0:27:33 Speaker 0] Oh, well, I see what you’re saying is like, How you write, does it is that include or exclude? And you always want to include? You don’t You don’t want to use jargon or language that people can’t understand. You have to boil things down. And you you know this from like having worked at the SEC where you know, there’s just, you know you’re right. The SEC says to mutual funds that in the summary perspective, you know, they have to use plain, plain English, right? And these documents have to be accessible to the retail investor. Uh, and then you read an SEC regulatory release, The preamble, the thing that explains the regulation they are articulating or they’re issuing. And you know, the the release is like, really hard to read really hard to understand if you don’t work in that world and we want to be the opposite. We as journalists, we want to be people who explain complicated things in language that any person can understand who is willing to give a few minutes of their time to read the story.

[0:28:54 Speaker 1] Yeah, that leads me to a question that I’ve always wondered about. When I was in government. We might spend six months or nine months writing a new rule proposal, and there could be 5 600,000 pages. And then it would go to an open meeting where the public would learn about it for the first time, and you and other reporters would sit in the back of the room and listen to it. And then you were expected to write about it, perhaps even within a few hours. How do you How do you do that? How do you take something that regular has been thinking about for months and months and months and wrote thousands hundreds of thousands of words on it and then distill it into some sound bites that hopefully your readers could understand?

[0:29:35 Speaker 0] Well, it’s, you know, it’s obviously harder if you haven’t covered the subject before, in which case you need to spend some time before the news event. In the case that you’re describing that public meeting, you need to spend some time before that, just doing some homework and understanding the subject and writing some background material that can go into your story. That doesn’t hinge on the key decisions that regulators make in the proposal or the or the final rule. So, you know, and then it’s, uh, it’s It’s It’s the answer to questions, I guess hard and I found it always found it hard when I was covering those meetings. Two. Make sure in the moment and really fast that we focused on the right thing, like, What is the thing that the market is looking for? And that’s that’s what you want to know before that meeting is okay, They’re putting out a rule and sorry, they’re putting on a release and the release. You know, there are three or four key requirements and within three or four key requirements, their sub requirements. And they’re like things they have to do that a company has to do to show they’re complying and all that stuff. But like, what’s the one or two things the market is looking for? And that might affect market participants, whether they’re the regulated entities or whether they’re investors, you know, that’s that’s what that’s That’s how I approached, it was like, you know, what are they? What are they like, really waiting with bated breath to learn? That’s the thing I want to listen for, so that in the first version of the story, right, at least we are hitting on the thing that people care about the most. And being that you

[0:31:27 Speaker 1] report from Washington,

[0:31:29 Speaker 0] how do you stay informed about

[0:31:32 Speaker 1] regulatory happenings? And who and how do you develop your sources

[0:31:38 Speaker 0] in in and around Washington? Well before the pandemic is a lot easier, You just, you know, you have to meet people and you have to try to meet smart people and ask them, You know what they’re working on. Ask them about things. You’ve read things. Other reporters have written things academics have written about cases that are cover white collar crime, too. So, like trials that are going on. Yeah, to me, it’s like a There’s like a a bit of a mathematical function for what we do, and it’s like, you know, it’s, you know, one of the coefficients is just like, how many meetings did you have like because the higher that goes, the more likely it is that you’re going to learn stuff that’s interesting. So if you’re not talking to people enough, you’re not just not going to learn enough. You know you can read until your eyes bleed, but if you’re not talking to people, you’re not. You’re not getting anywhere, really So and I shouldn’t. That’s an overstatement, because you can use document based reporting to do a lot of really good work. So I’m not. I’m not minimizing like investigative, document based reporting just mean for what I do. It’s really important to meet people. So whether that’s people in the government outside the government, defense attorneys, investors, lobbyists, you know, people running business lines, business segments, trade groups I mean, just it’s just like it’s such a good place to be, to learn about what I cover. Maybe New York would be better just because that’s the financial services capital of the world. But the government is here, so in a lot of ways it makes sense for someone like me to be based in Washington. So I would say pre pre pandemic, you know, it’s just, you know you’re out there kind of hustling and just trying to meet people and learn things and rely on their willingness to help you learn stuff that that you’re going to write about.

[0:33:46 Speaker 1] I noticed in your answer, you use the word coefficient. Gave me a warm, fuzzy feeling that you would use this his firm as a reporter to describe how you think about that.

[0:33:57 Speaker 0] Yeah. I mean, that’s that’s partly because I have a you know, I have I have a bit of a background. I don’t I don’t want to overstate it. You know, I went, I went to I studied economics. I went to have an MBA. I went to business school. I like unlike one of those, you know, nerds that likes accounting and statistics. I don’t get to use it a lot in my daily reporting because so much of what I do is about qualitative and quantitative information. But I think that way, sometimes part of it, too, is just my You know, my family this way, like my dad is, uh, my father, my mother were both scientists, and my brother is an economist at the Fed. So

[0:34:43 Speaker 1] you’re the black sheep of the family.

[0:34:46 Speaker 0] Yeah. Yeah, I am. I’m like the I’m like the I’m the writer. I’m like the one that they can’t figure out where that came from.

[0:34:54 Speaker 1] So following on Hamas Question about sources. I’m curious. I mean, we live in this post truth alternative facts world where people don’t agree on the set of information for which the base an argument. And I’m wondering, Do you think about that when you’re writing your stories and you think about whether you need to do something different or extra to convince your reader that you’re basing your story on sound facts?

[0:35:22 Speaker 0] Yeah, I think that I think all journalists should think about that. And I do think it’s an issue that I think that that problem affects political reporters more than it affects me. But But it still it still affects you if, as a reporter like myself, if readers are getting information from websites that predisposes them to think something that’s different from what I’m writing so or if they’re getting it from social media, so I do think about it, I I don’t see it that much. I do read the comments sometimes on the website to see what readers say about our stories, and, you know, sometimes you learn stuff which is great, like, Wow, I didn’t I didn’t know that I should have should have known that before I wrote the story, but I I’m aware of that phenomenon, and it’s obviously problematic for news reporters in, I guess, because I because I don’t have the best way probably to deal with it. I I sort of fall back on something I heard when I was before I was a business reporter. I worked with a business reporter on a bunch of stories that we did together, where I was more of a policy reporter and he was a business reporter. And, you know, we were working on something and and, you know, he just basically said this thing that I would have learned if I’d gone to journalism school, which I didn’t. I mean, I didn’t major in journalism, and he said, If you’re going to write business stories, you’ve got to have some numbers in them. You got, you got to You got to show why something matters, whether whether it’s because revenue went up or net income went up, expenses went up or the stock price went up or down some market impact. You know, there’s a trend line over several quarters that shows something has changed. And so I just sort of fall back on the idea. There are numbers that can illustrate and data that can illustrate what you’re writing about them, like what you’re writing about is just much more credible. And people can still find a way to question your numbers. And they should. People should always be skeptical of what they read, but at least the first step is try to go get some data and and at least stress test your anecdotes with some data.

[0:37:49 Speaker 1] Can we, uh, talk about white collar crime?

[0:37:53 Speaker 0] Yeah. So

[0:37:54 Speaker 1] this is your current beat. You’ve been on it for at least a couple of years now, I believe, and I have to hear something a lot, and I wanted to get your take on and see what you think. But there’s a perception that Republicans are lighter touch on market misconduct and Democrats seek stiffer punishments. And I’m curious based on your coverage and your thoughts. Do you see that? Do you believe that?

[0:38:20 Speaker 0] Um, I mean, that is Certainly that’s certainly like the conventional wisdom when it when it comes to enforcement, I don’t know there’s such an easy rule of thumb. It’s a little more complicated. I I do think that, you know, the Republicans and Democrats may have different targets, like and by targets. That’s sorry. That’s a loaded term. I don’t mean they go out and they’re like, You know, we have to get a case against this company. I just mean that they, Republicans and Democrats may feel like the enforcement focus should be on a particular segment or a particular type of market actor. I don’t I think it’s obvious that Democrats think that regulators need to be really dogged and persistent in finding enforcement cases that hold the biggest banks and other biggest financial institutions accountable, that those are the most valuable enforcement actions to file. And if you’re prosecuting somebody criminally, those are the most important cases or people to indict and prosecute, and with Republicans, I I’m not sure that’s that’s true, but I’m not. I’m also not sure that they completely disagree. They still think enforcement is really important. They still believe that wrongdoers should be held accountable, like, you know, they hold just the idea of, you know, tough justice and and you know not being soft on crime. That’s a I think that’s a Republican value. Last time I checked, and therefore it should extend in some way to white collar crime. Now, with beyond that, it’s much more nuanced, right? Like Republicans think that corporate penalties and you know this. Some Republicans think corporate penalties punish shareholders, and we’re now we’re talking about civil, mostly civil enforcement actions, although you can have penalties in the criminal world to for sure. So Republicans may disagree with the idea of hanging a billion dollar fine on a company. When all that money comes out of retained earnings or I don’t know, maybe it’s paid for by insurance. I’m not sure, but, uh, so there are some distinctions there, but I try to think about it. I try to think about the nuances of that beyond, just like these guys like tough penalties and these guys protect industry. I don’t I don’t think it’s that I don’t think it’s explained

[0:40:54 Speaker 1] that easily

[0:40:55 Speaker 0] or that globally,

[0:40:56 Speaker 1] let me ask you a little bit differently. Do you think there new administration coming in the by administration coming in? Do you think there’s going to be a different focus on enforcement at the SEC or the DOJ.

[0:41:09 Speaker 0] I don’t I think there there is. Uh, there is a segment of what the SEC and the DOJ do that that maybe discretionary. In other words, some enforcement cases and criminal cases are just always going to get filed because tips and complaints are made right. And if you give a tip or a complaint to a law enforcement official, they will and should investigate it. And so the discretionary stuff, I mean, like, they’re going to try to be smart about looking for their own kinds of cases, and that doesn’t mean, like just going undercover. I mean, it could be that the stuff comes from whistleblowers or they could be looking for tips in the newspaper. But, you know, I do think there will. There will be an emphasis on looking for maybe more cases that involves the biggest Wall Street participants when it comes to the sec. Um, and I’m not saying that they didn’t do that or they did a bad job of that under the last chairman. I’m not. I don’t mean that at all. I just mean that I would expect that to the extent that there’s something different, you know, the last the last under a Republican direction. The SEC recently emphasised cases that harmed enforcement cases where the victims were main street investors, just everyday people who were fleeced by brokers or investment advisors or Ponzi schemers. So let’s say Let’s say the next administration doesn’t talk so much about that kind of stuff, and instead they say We’re going to go after we’re going to look for cases where the biggest and smartest market participants are using their advantages to get over on their counter parties or on their investors. And I do think I would expect there to be something like that and within white collar

[0:43:04 Speaker 1] crime. What is the most interesting story

[0:43:07 Speaker 0] that you’ve reported on? In your opinion? Well, that’s a hard question, because I I found like my you write so much that you sort of you don’t really always remember like the most. The most interesting things are the funnest thing. You kind of remember what you did last week, but, you know, I don’t know. I I guess recently in the last year or so. No more than that, it’s been a few years. I have covered a lot of these cases that involved Cryptocurrencies and the SEC under the last chairman made this big push to stamp out not only fraud but, you know, just illegal Cryptocurrency sales sales that were illegal but not not fraudulent. And I thought that was just a really interesting and fun thing to cover because I you’d meet a lot of people that were not your typical Wall Street professional or lawyer. When you covered those stories, you were meeting people and talking to people who were. Some of them were legitimate Cryptocurrency developers with software engineering backgrounds. Some of them were hucksters and scammers. You know, some of them were people who meant well but couldn’t figure out what the securities laws required and why their their Cryptocurrency fell under the investor protection laws. You talked to lawyers who had, you know, didn’t have the Orthodox background of all the lawyers that Scott knows from the SEC. And therefore we’re like, maybe a little more willing to sort of explain to you why people did certain things that were a little less guarded. It was just it was a really interesting area to cover because it was so different and you know you can go down a rabbit hole and it can become like everything else, just kind of, like, complicated and and about whether this or that regulation applies. But like at a high level, it was just a very interesting thing that out of the blue came this world of Cryptocurrency and initial coin offerings where people were raising hundreds of millions of dollars in alternatives to impose that were completely unregulated. And, you know, some of them, maybe some of them were legitimate. But like just that, just the fact that they were people raising so much money attracted a lot of people who did not have good intentions to try to do the same thing and to raise a lot of money without really being able to tell people what they were going to use the money for.

[0:45:42 Speaker 1] You think those issues have been resolved? Do the quote unquote good actors who just didn’t know how to comply with securities law? Have they figured out a path for Icos?

[0:45:53 Speaker 0] I think they have been forced to like walk the walk and the FCC wants them to, um it’s not the walk they wanted to walk right like they didn’t want to register. They wanted just to be able to sell Cryptocurrencies and say those things were not regulated investments and they should be traded everywhere. But what they have found is that the SEC has basically crushed that market through this enforcement campaign. And the SEC has brought these people this industry into into the regulated tent and said, If you want to do it, you’ve got to go through all these steps that any other company would comply with if they were selling securities to the public And that’s not that’s not what those those that industry wanted. I mean, some of them have managed to do it, but it is. It’s not the outcome they wanted. And you know, actually, I don’t I don’t know if that’s, you know, if there’s a way to deal with that long term, I’m a little behind the curve on sort of the latest and greatest in Cryptocurrency and distributed finance. But it’s an interesting question. Whether you know Cryptocurrency for the purpose that it existed in the last few years, I don’t mean Bitcoin. I mean the other stuff that was like designed to raise capital for. For these developers, can that coexist with SEC regulation? Yeah, but like probably not in the way that that these like pioneers of it. I guess if you want to call them that, like intended.

[0:47:39 Speaker 1] Do you think the Biden administration will take a different course or continue with the same path?

[0:47:44 Speaker 0] I don’t know. I mean, that’s a really interesting question. Like, what is it about any particular regulator who identifies as a Democrat? That would predispose them to be more hands off when it comes to Cryptocurrency or token offerings than then? The Republicans were right. I guess I don’t see it. I mean, Gary Gensler has been reported to be the next chairman of the S E C. And Gary is, uh, you know, he’s sort of reinvented himself after running a different federal agencies kind of reinvented himself into a person who understands the nexus of technology and regulation and finance Blockchain. So you know, that’s like one of the great questions about Gary Gensler is like with the background he has. What do you want to accomplish? What problems did you want to solve in this world of Blockchain and crypto and I don’t know the answer to that. That’s like one of the first questions. Yeah, I know there are a lot. So I’m saying this in the moment and then somebody will say, Well, that’s not the most important questions.

[0:48:48 Speaker 1] So do you think spoofing is an important question for the next administration? What is spoofing? And you’ve written about that? Curious. If you could tell us a little bit more

[0:48:59 Speaker 0] Well, it’s It’s a It’s a type of market manipulation in which traders use orders. They send orders that are designed. Two give a false sense of supply and demand, and then that causes other traders to update their prices. Or it lures them. It lures the other traders into trading at a price that the spoof for wants. But that price arguably isn’t fair. And it’s, I guess, if you just think about it as market manipulation or or rigging the price, which is kind of how the Justice Department has characterized, it’s like rigging then then that’s That’s why the prosecutors have called it fraud. And they brought many, many cases. I’m trying to think how many defendants there are dozens of defendants, both individual and companies, that settled cases. And and so it was. It is one of the types of market conduct that that the DOJ has gone after the most recently in the last few years.

[0:50:11 Speaker 1] So you covered a trial in Chicago that involves some big industry players. And when you wrote about it, you wrote about an episode where the defendants called spoofing something that can to play action in football, where you pretend to hand it off, but you really throw it. And so what’s the big deal? If somebody the market pretends to want to buy or sell a stock but doesn’t really it’s just faking out of some, um, the other side. I mean, do you think that’s a good analogy? And do you think the government is why I think the government is so interesting making criminal cases against this?

[0:50:52 Speaker 0] Well, I don’t You know. There are, like, complicated legal arguments about that, and some of them turn on the idea that if you’re sending in order to the market, you’re not making a verbal representation about your intent. You’re not you’re not saying like out loud. Hey, I had tested the fact that this order is legitimate or hey, this order is like a fake like you’re not making a disclosure of your intent. It’s your intent is implied by the fact you sent the order. So set that all aside, which is a bit of an ethereal legal argument. And, you know, if you just think about well, what if the market becomes a lot of traders sending in orders that are head fakes that are just assigned to sort of make other traders move up or down And in the best price, I guess the argument that I hear when I ask people ask experts that is that you don’t want the market to become this this hazy world where you don’t know what the real prices you know. So if you tolerate this kind of these games, then the market, the integrity of the prices is always suspect, and it becomes even harder for automated traders who rely on you know what they call the order book, which is, you know, the the flowing prices, all the orders, all the expressions of interest. It becomes harder for those computerized traders to actually make the right trading decisions because they can’t really trust the data

[0:52:25 Speaker 1] do you find it odd that the government Department of Justice is relying on automated market makers as their witnesses or their victims to testify against these humans that are accused of manipulating the algorithms?

[0:52:40 Speaker 0] I guess I don’t find it odd. It’s in some ways, it’s It’s sort of logical because I have learned over the years that those automated traders were the ones years ago that we’re the first ones to detect. I shouldn’t say first they detected. They detected telltale signs of manipulation because they can make sense of the order book faster than many other market participants. So I know through my reporting in the past. But some of these firms have gone to regulators such as Mineral, which is a self regulatory organization that does a lot of market surveillance for the stock exchanges. These automated traders went to FINRA and said, like you should look at these, these particular actors, we think they’re they’re trying to rig the price. So there, you know, and then also they they These are the entities that really, you know, keep a record of their trading and know when they traded and why at that moment that order was off of the price that they’re models said it should be so in some ways, it’s logical. Uh, it just creates this like, you know, it creates an opportunity. Maybe it’s a fair question to ask, you know, Hey, why is it that the smartest and most technologically savvy traders are quote unquote the victims, like, How can it be that they’re the victims and these human guys are the perpetrators? And then how will that play in court? Right. And and so we’re learning that that was a fascinating thing about that trial is just trying to, you know, I wanted to. I wanted to see if if a jury would have problems with that, uh, with that proposition and and it didn’t seem like they did, you know, they convicted those traders at the trial I covered in Chicago in September, and it didn’t seem like the jury was too worried about the fact that the quote unquote victims, even if they weren’t called that technically in the trial, it didn’t seem like they were too worried about. Those were the entities that were testifying against the traders.

[0:54:41 Speaker 1] So one more question for you on that when you were sitting through the trial, Did you ever want to jump out of your seat? And, uh, so you’re asking the wrong questions. Here’s what you should be asking.

[0:54:53 Speaker 0] I mean, you as, uh, when you watch trials, you’re listening for certain things. But, you know, I guess my answer is no, not really. Just trials proceed so slowly. These are such complicated subjects that you you have to have patience listening to prosecutors and defense attorneys draw out key fact and emphasis it a couple times so that the jury understands it. And, you know, on the on the defense side, you know, I mean both lawyers, I’m always as I was just kind of surprised how well they master the subjects like these are things that they’re. These are lawyers talking about aspects of market structure and how transactions work that are pretty complicated. And they, you know, both sides seem to do like a really good job explaining this stuff. And for the most part, at least in the trial I covered putting it into language that jurors could understand.

[0:55:56 Speaker 1] So we’ve we’ve covered a lot, maybe not as much as we wanted to, but there’s a couple more questions we hope to get from you if we switch gears a little bit and go up to 30,000 ft and think about the current times we live in. And as we make this transition, do you have any thoughts on how much the Biden approach to financial regulation will resemble the Obama era approach? Should we expect more of the same? Or do you expect something different coming?

[0:56:24 Speaker 0] Um, I I think it will be different just because I think the priorities are different, that times are different. We’re not dealing with the financial crisis. And so, you know, I you mentioned, you know, your audience is interested in in, um, social responsibility and and the idea that investing and businesses, investors and businesses should be focused not just on what makes money, but what is good for the world and good for social welfare. I wonder if that’s going to be how that’s going to be carried out as a policy issue with respect to finance the capital markets during the during the Biden administration. You know there’s there is this world of environmental, social and governance oriented investors, and they have made a lot of inroads in the industry and with investors, and particularly with younger investors in the last five years or maybe more. And I just wonder how the Biden administration will take note of that. I mean, I didn’t even mention I just buried the lede like its climate change right like that. That’s what that’s what. That’s what seems to be an issue that will jump to the forefront again. And so how does how does climate change dealt with at an agency like the SEC or the CFTC? And I think that’s that’s not an issue that really was at the forefront during the Obama years at at the financial regulators. Obviously, it was in the Congress with something like cap and Trade. But that’ll that’ll be. That’ll be a bigger I think. Area of focus for the SEC.

[0:58:08 Speaker 1] And have you noticed public opinion surrounding regulation shift noticeably?

[0:58:14 Speaker 0] Um, I guess not. Not like it did after Oh, eight. I mean, I you know, after oh, eight, there was a belief that regulators had to be more active and do you know, do more and write more rules and and crack down. And, um, I guess more more recently. You don’t really detect that because we’re not. We’re not living. I mean, the cycle that we’re in is, you know, the market’s still going up, right? If the market correct in a big way or a particular part of the market you know, fails in some way, then I think public sentiment will will follow and demand change. But we’ve been in a cycle since away where the 09 since the market’s just been going up, up, up, up, up, up with a few hiccups here and there. Well, obviously had a correction a major major issue in March, so I shouldn’t minimize that. But you know, for the most, for the most part, there hasn’t been human cry in the last several years to make big changes in financial regulation. And, you know, I don’t know. How will how will that affect how the Biden administration approaches Finance and Wall Street? That’s that’s kind of another interesting factor.

[0:59:31 Speaker 1] You think that there are stories or financial market issues that aren’t getting enough coverage now or won’t get enough coverage going forward. In light of all these maybe bigger issues like the pandemic vaccines, presidential elections, and politics and impeachments.

[0:59:48 Speaker 0] Um oh, so I I think I think that financial market issues never get enough attention in the Congress and and with the public. I mean, that’s I just think that they only get attention when there’s a crisis. And the more attention and the more people thinking about these things, the better. So particularly during the pandemic, particularly dealing with the other events that you mentioned. Yeah, you know, the the issues, the moment are things like, you know, impeachment. Next year they’re going to be recover the economy recovering. It’s going to be going back to issues around diversity and policing and law enforcement, income inequality. You know, some of those you know, some of those. There’s a crossover with market regulation, but not with all of it. And so, you know, if the Congress is not that focused on market regulation, and I would my observation is they haven’t been that focused the last few years. You know, I don’t Then there’s less oversight, and when there’s less oversight, you the public learns less because the entity that is ultimately the most able to draw information out of the regulatory state is the Congress. They just have, you know, they have. They have the power, right? They have the power of the purse. And, uh, there are limits to what the public and the reporters can learn about what regulators do because so much of what regulators do is behind closed doors.

[1:01:26 Speaker 1] So, Dave, I’m going to give our last question to Ahmad Hamad. What do you think our listeners need to know most? Do you have any advice for students considering careers in journalism or surrounding financial markets?

[1:01:41 Speaker 0] Yeah, well, I mean, I if you’re if you’re pursuing journalism as a career, you know, you have to go into it with your eyes wide open that the industry has kind of been atomized. And it’s a bar bell. You know, there’s really big guys, and there’s some digital companies that are that are that are new and doing okay, but the places where you would have launched your career 20 years ago, a lot of those are are much weaker than they used to be. So you have to have more of an entrepreneurial mindset about you know how you’re going to how you’re going to make a living. You know, you specialization helps a lot, in my opinion, because you can learn more. You can. You can sell your insights directly to readers. You know. That’s the whole phenomenon, I guess, of Sub Stack and you know, platforms like that just learn all you can, not just about how to write a story, but even more important is like How do markets work, right? Like, how does economics work? And you’ll have a big advantage because you know you’ll be able to at least ask the right questions, right? It’s always hard to get people to tell you what they don’t want to tell you if you’re a reporter, but at least you’ll be able to ask the right questions.

[1:03:02 Speaker 1] That’s great advice. Thank you. You, Dave, really appreciate you coming on speaking with us. It was great. We hope you enjoyed this episode, and if you did, please consider telling others about it. We have a great lineup of future guests. Each will help us explore the inner workings of financial markets and regulation. Our aim is to make the issues both interesting and understandable. This production is brought to you by the Salem Center for Policy, housed in the McCombs School of Business at the University of Texas at Austin. If you’d like to learn more about the center, visit Salem center dot org. Our student executive producers are Abby Sawyer and Za’atar from the Movie School of Communication and my co host for this episode of Hamad, Now John, who also assisted with the background research. Mm