Chairman, SEC
Former SEC Chair Gary Gensler Talks SpaceX & Mega IPO Risks | Bloomberg Talks
Gary Gensler, former Chair of the Securities and Exchange Commission, says SpaceX’s blockbuster IPO is part of a new era of mega-IPOs, raising questions about valuation, governance and what future AI debuts could look like. He also warns AI models could create a financial stability event and discusses the regulatory fight over prediction markets. He speaks with host Kailey Leinz.
See omnystudio.com/listener (https://omnystudio.com/listener) for privacy information.
Bloomberg Talks curates top interviews from around Bloomberg News. Hear conversations with the biggest names in finance, politic...
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 (16 segments)
✨ AI-enhanced transcript with speaker attribution
H
Host0:00
Bloomberg Audio Studios, podcasts, radio, news.
And joining me now for more on this here in our Washington DC studio is Gary Gensler, the former chair of the Securities and Exchange Commission. Mr. Chairman, welcome back to Bloomberg TV and Radio.
G
Gary Gensler0:17
Oh, it's good to be with you, Kaylee.
H
Host0:18
It's good to see you. It strikes me that we did see SpaceX debut today after Senator Elizabeth Warren wrote to the SEC and requested a delay over concern about the valuation, concern about how this could impact retirement accounts. If you were still helming the SEC, would you have shared those concerns? Would you have let this go forward?
G
Gary Gensler0:38
Other people are in that job right now, but some of the concerns that I think she also wrote another letter to the index providers and Roma was just speaking about that. One of the things is that NASDAQ made an accommodation. They changed their rules, and for your listeners this is important because it's when do the index companies purchase these securities. What's interesting is at SpaceX, they have an arrangement where a lot of their insiders and venture capital firms aren't going to have the traditional lock up for 180 days. It will be a faster phasing of this. In fact, what will be interesting under the NASDAQ rules, once about a third of the stock, 33%, is no longer locked up, which could happen as quickly as July of this year, then they count all of it in the index. So all of a sudden pop into the NASDAQ 100.
H
Host1:42
So let me ask you this. As you speak to the unique nature of this in so many ways, do you see this as being unique to SpaceX and an Elon Musk-led company and changes being made with that in mind, or is this really setting new precedent and this is the way we're going to see these things work going forward?
G
Gary Gensler2:00
Well, we're in this little era of mega IPOs, and we don't know what will happen with Anthropic and OpenAI. We just have this Google offering of $85 billion. That's a sign of this enormous interest in artificial intelligence and in this case in space. I do think there's a shift that's gone on here in this particular offering. I mean, the valuations, Kaylee, with the 19% pop today, are about 120 times revenues, not earnings. There's no profit here. And two of the businesses are pretty understood. Their space launch business and their Starlink, which is called connectivity. Those two businesses combined only had about $16 billion in revenues in the last 12 months. Their artificial intelligence business, Grok, is not currently thought of as one of the leading three. That's Google, OpenAI, Anthropic, and don't count the Chinese models out. So you know, where does that play out over the next 2 to 5 years, and are these valuations taking some of those risks into account?
H
Host3:19
Well, and I also wonder how much of the valuation is valuing the man at the top. Elon Musk, he's going to have 85% of the voting share here. There are major governance questions that were raised as this company went public. How great of a concern is that to you?
G
Gary Gensler3:35
Well, they've also shifted some things. They did a little bit of, we're not going to be in Delaware anymore. We're going to be in Texas, right? We're going to be under a little bit different governance. And they also, the Securities and Exchange Commission changed some things that shareholders can't sue the company. They have to go to arbitration. So the governance has really shifted, and those risks have to be understood by shareholders. I do think as you start to see these shares come available out of lock up, you'll see where this stock will trade. Your earlier segment said, well, it's all about will they deliver on this big commitment of the new Starship. But I also think the uncertainty is about how the shares come out of lockup. There's a lot of venture capitalists that will say, listen, I love this, but let me take some risk off the page. Right? I mean, this is at 120 times revenues. Maybe I should take some of the profits off the page.
H
Host4:41
Well, it's lofty to say the least. Of course, we had a sense this was an unusual pricing, not the typical discovery process. It was just set, but we did have a sense of what the demand would be based off of private market behavior and also prediction market behavior. I want to talk to you more about the prediction markets overall, Mr. Chairman, because we have also seen, as maybe we're reaching the end of it now, open question as to whether we reach a memorandum of understanding with Iran, but we have frequently seen bets being placed on this conflict, actually things moving in futures markets. I know the CFTC is looking into this, but do you think people should be concerned that the US capital markets, which are renowned for their transparency, that perhaps some people are getting an edge that others don't have?
G
Gary Gensler5:23
Look, I think there are always those concerns, but this corner of the market, so-called prediction markets, where you can effectively make bets on whether the president of the United States is going to settle with the Iranians or not, or on sports or on politics, it's very hard to protect the integrity of the underlying events. So I think that's a challenge. I think we'll see how if investors get burned in those markets, then they'll back away. But could it also undermine the integrity of our traditional financial markets? That's what I would worry about too. If it undermines the oil, energy, and stock markets.
H
Host6:11
Do you believe that ultimately prediction markets should be overseen by federal regulators versus the states?
G
Gary Gensler6:18
Well, I just filed an amicus brief in the Sixth Circuit just yesterday, and I think this is settled actually that at least on sports betting, Congress in 2010 in no way said that sports bets are swaps, nor did they say that Commodity Futures Trading Commission, which I was proud to run, really is the federal regulator to oversee it. I talked a lot about prediction markets with Simon Johnson on this podcast that I have, Power and Consequences, but I think that the Supreme Court will ultimately decide what's going to happen there. But a mere assertion by a federal government actor that they control this, 39 states, blue states, purple states, and red states have taken the other side. When does that happen in America?
H
Host7:11
Well, we're seeing things happening in America like someone becoming a trillionaire. Perhaps it's capitalism at its finest. If I could just quickly ask you, whether it's Anthropic or OpenAI, or if Grok eventually gets there, when we see the power some of these artificial intelligence models have in the cyber space specifically, how concerned are you that the things that are supporting our capitalism and financial markets actually could create great financial stability risk?
G
Gary Gensler7:34
Well, I wrote about this years ago. I think it's even more the case now. I think we will have a financial stability event and it will ripple through with millions of people driven. Yes. But it might well be just that a bunch of banks or trading shops are relying on the same model and the model goes offline, like in that wonderful romantic comedy when Scarlett Johansson was playing the romantic interest. The love interest was a computer. Her. And she goes offline. I love romantic comedies, but that's the issue. In addition, you're right, the threat actors, and they can be state threat actors, North Korea, Russia, China, or just crypto-related ransomware actors. Those ransomware actors, they're probing, they're probing, they're probing. I was glad to see Anthropic figured out how to mitigate it. But I think the threat actors will use and are using AI to probe for vulnerabilities at Bloomberg and at Goldman Sachs.
H
Host8:55
All right, what an optimistic note to leave things on. Mr. Chairman, thank you for joining us. The former chair of the SEC, Gary Gensler, and let the record show he brought up crypto in this conversation, not me.