Chairman, SEC
Former CFTC Chair Gary Gensler on regulating sports betting: Let the states do it
Gary Gensler, former CFTC chairman under President Obama and former SEC chairman under President Biden, joins 'Squawk ...
About Gary Gensler
Gary Gensler, former chair of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), has been active in media appearances discussing securities regulation, prediction markets, and artificial intelligence. Regarding the SpaceX IPO, Gensler said the offering represents a shift in corporate governance, noting that insiders will not have a traditional lock-up period and that shareholders cannot sue the company but must go to arbitration. He stated that these risks "have to be understood by shareholders." On the topic of quarterly earnings reports, Gensler opposed a proposal to move to semi-annual reporting, calling it "a solution in search of a problem" and arguing that transparency is important for capital markets. Gensler has been a vocal critic of expanding the CFTC's authority over prediction markets and sports betting. He argued that Congress did not intend for the CFTC to become a national regulator of sports betting when it passed the Dodd-Frank Act, and said states should regulate such activities. He also warned about the risks of AI, stating that "we will have a financial stability event" if banks and trading shops rely on the same AI models, and that threat actors will use AI to probe for vulnerabilities. Regarding insider trading in prediction markets, Gensler said Congress should prohibit government officials and their families from trading on these platforms, calling it "too hard to police this and to enforce it rigorously."
Transcript (33 segments)
✨ AI-enhanced transcript with speaker attribution
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Narrator0:10
Former CFTC Chairman Gary Gensler is filing an amicus brief arguing Congress did not intend to make the CFTC the nationwide regulator of sports betting when it passed the Dodd-Frank Act in 2010. Gary Gensler served as CFTC Chairman under President Obama when Dodd-Frank was passed, and he later served as SEC Chair, as you know, and was a frequent guest under President Biden.
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Interviewer0:33
Good to see you this morning. You're in town. Terrific to be with you. How were those, Kelly? How were those courtside seats you had last night at the game? Is that why you're in town? Boy, that would have been exciting. I mean, can you just imagine with 1.2 seconds left, that little tip in on his fingertips. I mean, he barely was able to reach it. Yeah, and when it was 29 points away, I went on Polymarket. I have to admit it. I went on, I said, and right then it was trading at $0.93 to $0.07. It was. Yeah. And then, you know, it came the other way. But you didn't place a bet.
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Gary Gensler1:10
No, I did not. I have no economic interest in any. But off camera, you said you can understand why people like to do this. Look, it's since antiquity, we humans like to wager on sports. I think at the core of this issue is did Congress in 2010 say no. None of the states can regulate this. It's going to this little small agency that I once was proud to run. And the answer is categorically no. If we had asked Senator Harry Reid, who was then the majority leader, who had the Nevada senator, Harry Reid, we're going to take this and move this to the federal government. He would have thrown me out of his office. Right.
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Interviewer1:52
It's not staffed.
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Gary Gensler1:53
It's not, was never designed.
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Interviewer1:55
It's no, it's not handle it. It's, it's an agency that was set up in the 1970s around corn, wheat, agricultural derivatives, and then energy and interest rate derivatives, important stuff, really important stuff. But to think that you're going to regulate millions of transactions of whether somebody is going to hit a three point play.
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Gary Gensler2:22
Yeah. So what is your in the end, you're going to file an amicus brief.
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Interviewer2:25
Later today in the Sixth Circuit.
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Gary Gensler2:27
In the Sixth Circuit, saying what?
Well, in essence, I want to tell the story of why Congress did what they did. Millions of people were out of work. Millions of people had lost their homes. And there was a desire to cover what was called the credit default swap market and the interest swap market, not sports betting. And tell that in a way, courts like to hear it, looking at the text, looking at the words. And I think that's what I want to do. And I want to respect Harry Reid too. I know you and I might differ on Harry.
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Interviewer3:04
I told you I was still mad at Harry for. And I'm not necessarily a Mitt Romney fan, but. But to say he never paid any taxes. And then after he loses and they prove that he did pay taxes, and then Harry Reid says, well, we won, didn't we? He knew the whole time.
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Gary Gensler3:19
But to think that under the US Senate at that time, when nobody was talking about sports betting. No, I testified in Congress 54 times. And literally Republicans and Democrats alike. Nobody said, oh, you know what, Gensler? I think we should give your small agency under President Obama authority to regulate sports betting.
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Interviewer3:43
Even this recent kind of like the rise of all these platforms comes from the CFTC dropping lawsuits against them. I mean, it's not as if that there was some big rule change. So the CFTC now has come out with this big proposal. I'm sure you've seen it, 200 some pages where they talk about what they think should and shouldn't be permitted. They would permit betting on outcomes, maybe not so much betting on injuries and things that can be more manipulated. Is that a step in the right direction?
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Gary Gensler4:08
No, no. What they're trying to do is to, one, say that they have authority over sports betting, which I don't think they do. That will play out all the way to the Supreme Court, of course. And two, they're trying to reverse a rule. We voted unanimously back in like 2011, unanimously to prohibit agreements, contracts or transactions. Listen, on assassination, war, terrorism, gaming or on unlawful acts. Those five categories were placed there in Congress, and it was placed there because most members of Congress thought there shouldn't be contracts on assassination, war and terrorism. And interestingly, Congress said, put gaming in there, too. There shouldn't be contracts.
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Interviewer4:52
And they're now arguing that gaming is a, you know, a different definition or something.
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Gary Gensler4:56
Yeah. And so we unanimously voted on that 14, 15 years ago. And the CFTC is saying, well, let's reverse that. But I don't even think they have authority over sports betting at all.
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Interviewer5:11
And 70 to 80, I didn't realize that 70 to 80% is sports betting on.
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Gary Gensler5:16
Yeah. If you look at Cohere and you look at Polymarket, that's where the revenues are. And they're competing with FanDuel and DraftKings, right?
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Interviewer5:28
If this is regulated at the states where I believe it is, you people could still bet on FanDuel and DraftKings or at the casino. Yeah. So would the CFTC try to say to the states that they're not able to do that? There's about 30 lawsuits going on right now in this country, and the CFTC has done something pretty unusual. They've preemptively filed suits against various states, Arizona and New York and other states. But interestingly, 39 states joined together, you might call them red states. Purple states and blue states joined together last week and filed together an amicus brief in the same Sixth Circuit case that I'm filing this. I've never done this before. I'm doing it really just out of respect for everybody. And what we did 15 years ago was about these credit default swaps and interest rate swaps.
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Gary Gensler6:22
The world according to how you think it should be ordered. There is a place for sports betting. But regulated. By whom?
Well, it's how it is ordered. It's regulated by the states. The states have a lot of money.
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Interviewer6:37
The CFTC doesn't have the resources.
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Gary Gensler6:37
That's right. The CFTC has shrunk, but it's maybe 400 people. It's actually just recently, this past week has put out another downsizing. And then the states have all this revenue. Let the states do it. And by the way, some states prohibit it. 11 states prohibit it completely. Some states say, listen, you can bet if you turn 21, not 18. And here the CFTC is saying anybody can do it in all 50 states, and you can do it even if you're 18. And, you know, there are legitimate concerns and debates about addiction, there's legitimate concerns about whether this is good for kids to do the dopamine rush of it all, so to speak. Let the states sort that out. Do you.
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Interviewer7:26
Think we've got a handle on the non-sports?
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Gary Gensler7:30
No. Look, Joe, you've raised a really good point. Prediction markets were raised many years ago by the Defense Research Bureau, called DARPA inside the Defense Department, and they said maybe we should have some contracts on terrorism, war, assassination. And it got shot down in 24 hours. The George W. Bush administration said they disavowed that. And the reason is, is that it's pretty tricky stuff to say. Let's have a contract on whether you're going to take out Maduro in Venezuela, whether you're going to take.
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Interviewer8:07
Out that in the first place.
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Gary Gensler8:08
It was right after 9/11, and DARPA said, well, maybe we could learn something because somebody who knows what the somebody in that era, somebody a bad guy in the Middle East was going to do, maybe it would leak into the markets. But here's the thing. I don't think you can really protect the integrity of the underlying market. It's really hard to protect the underlying integrity of sports. But here. But here, can you protect sports.
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Interviewer8:41
And everything else in the world?
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Gary Gensler8:42
That's right. Can you do it on what you call political events or geopolitical. Will somebody leak something out of the situation room? So when I was at the CFTC and working on that Dodd-Frank bill, we went to Congress and we said, do you know that movie Trading Places? Do you know Eddie Murphy movie where he was? He was a trader and he got some information.
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Interviewer9:04
From brothers. On the orange crop report, and he traded on frozen orange juice futures.
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Gary Gensler9:15
I asked the staff, I said, is that illegal? They said, well, no, not really. I said, we should ask Congress for a provision. We called it the Eddie Murphy provision. Congress put it in. It's now illegal to trade on inside information from the government. I think Congress could maybe go further.
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Interviewer9:32
Companies now to look at the Google guy who placed all these bets because he was aware of what was going on inside the. So now she's going to require you to sort of say what your company is when you sign up, but I'm not sure if that goes far enough.
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Gary Gensler9:45
Yeah, it's very hard to ensure that there's no insider trading in the stock market, but in these markets it's so much harder. There's so many more contracts. There's not like an issuer. You know, those fiduciary duties. You're just some political consultant or somebody at Google that was on search. And so I also think Congress would be well advised to say, listen, nobody in the government should trade on these.