SEC Chair Gensler’s Former Aide New SEC General Counsel
The U.S. Securities and Exchange Commission (SEC) is the federal government agency responsible for enforcing securities laws. As of November 1, it has appointed a new General Counsel: Dan Berkovitz.
A former aide to SEC Chair Gary Gensler, Berkovitz has a wealth of regulatory experience. He joins the SEC after leaving the Commodities and Futures Trading Commission (CFTC), where he served as a commissioner. The CFTC is the main government agency in charge of regulating derivatives markets. It consists of five commissioners whom the President of the United States appoints and who serve staggered terms.
From 2009 to 2013, while Gary Gensler chaired the CFTC, Berkovitz served as general counsel. Berkovitz helped Mr. Gensler craft regulations to reduce risky behavior in derivatives trading. His contributions were instrumental in implementing the CFTC’s agenda under Gensler.
In addition to his experience regulating financial markets, Berkovitz has experience in the private sector and as a professor. He was a partner at the international law firm Wilmer Hale. At the firm, he co-chaired the firm’s futures and derivatives practice group. Berkovitz also served as an Adjunct Professor at Georgetown University Law School. He earned an undergraduate degree from Princeton in physics. After that, he earned a J.D. from the University of California, Hastings College of the Law.
The General Counsel Role
The SEC general counsel role is broad. It oversees a range of different areas that impact the securities markets in the United States. One of the core components of the job is to ensure the agency has robust regulations that can withstand legal challenges.
SEC Chair Gary Gensler has taken a tough regulatory stance over securities markets. For that reason, Berkovitz can except close scrutiny of his decisions. His past success working under Gensler at the CFTC suggests that the pair will be able to work well together. The will implement what some have termed an “aggressive” regulatory agenda to enhance investor protection.
“I had the opportunity to work with Dan at the CFTC, and I’m thrilled to once again work with him on matters essential to our financial markets,” stated Gensler. “Dan is a dedicated public servant and was instrumental in both informing and implementing the Dodd-Frank Act. As General Counsel, he navigated the CFTC through dozens of rulemakings to enhance regulatory oversight of the swaps markets, and he has remained a steadfast public servant as a commissioner. He will be invaluable in our work at the SEC.”
The SEC’s Increased Regulatory Focus
A key focus area of SEC enforcement will be crypto. Genslerhas not yet rolled out a specific suite of policies. But Gensler has made clear the SEC will devote significant resources to developing crypto market regulations while he is Chair. Specifically, with assistance from the general counsel, he hopes to introduce tougher rules for token offerings, decentralized finance, stablecoins, and crypto exchange-traded funds.
The CFTC has also taken a heavier approach to crypto regulation. The CFTC charged BitMEX, a crypto derivatives exchange, with a $100 million civil monetary penalty. The company operated an unregistered trading platform and for failing to follow anti-money laundering procedures. The CFTC commissioners have also made remarks suggesting many decentralized finance platforms violate the Commodity Exchange Act. The peer-to-peer trading network involved decentralized finance, or “DeFi.” It is one of the fastest growing sectors of the blockchain ecosystem. Berkovitz’s first-hand experience with the CFTC’s enforcement actions will likely inform his regulatory approach as general counsel at the SEC.
General Counsel to Assist Chair to Tighten Regulation
Gensler is less than a year on the job, but the SEC is working on stricter rules for high-speed trading firms, private equity companies, mutual funds, and online brokerages. Gensler is also focused on requiring public companies to increase disclosures on social responsibility metrics like climate change and board diversity.
For example, Gensler has attacked the practice of payment for order flow. It is common for brokerages like Robinhood Financial to send client orders to high-speed trading firms to execute investor trades. There are only a handful of high-speed trading firms, including Citadel Securities and Virtu Financial, that process the majority of trades from brokerage firms. This practice of payment for order flow has resulted in outsized profits for them because they profit from the difference between share buy and sell prices. Gensler has remarked several times that payment for order flow creates a conflict of interest, and that the SEC needs to impose regulations to curb the practice.
Gensler’s regulatory push is shaking up Wall Street. Many believe it is regulatory overreach. Hester Pierce, a Republican SEC commissioner, expresses this sentiment. “I do think it’s very easy for anyone who comes into one of these regulatory roles to become paternalistic. And so, we have to guard ourselves against that tendency, because we all think we know what’s best for everyone else.”
Looking At Challenges Ahead
Berkovitz looks forward to the challenge ahead in helping to implement Gensler’s plans as the general counsel of the SEC. “I am honored to join the SEC at this critical time for our capital markets,” Berkovitz commented. “Having worked with the SEC in my roles at the CFTC, I’ve long admired the dedicated and talented staff of the agency from afar. I’m excited to work again with Chair Gensler on a regulatory agenda that will enhance investor protection, strengthen our capital markets, and facilitate capital formation.”