Rep. Hollingsworth Talks Crypto; Blackstone Hires Schumer's Son-in-Law; Our Gensler Interview
Capitol Account: Free Weekly Version
The last week of July, but a lot going on. Our Friday Q and A with Rep. Trey Hollingsworth features his frank assessment of the House Financial Services Committee’s bipartisan effort on a stablecoin bill and his take on the Gary Gensler-led SEC. On the lobbying front, private equity firm Blackstone has a new hire with very close (family) ties to the Senate Democratic leader. Gensler also continued to make a lot of news — including in his virtual sit down with Capitol Account. And, we visit an ex-SEC official’s Twitter fight that has gotten, shall we say, a bit personal. Thanks for your interested in our publication. If you’d like to see the full versions of these stories, or read our newsletter in real time, you can subscribe by hitting the button below:
Friday Q and A: Capitol Account headed over to the House of Representatives to chat with Hollingsworth, a Republican on the financial services panel who spends a lot of time working on – and thinking about – regulatory issues.
Capitol Account: Why have you taken an interest in crypto?
Trey Hollingsworth: The technology itself holds much promise. We should be thoughtful about how we regulate that technology to keep consumers safe. And we should be thoughtful about how we regulate that technology to make sure innovation continues.
CA: What do you think about digital assets as investments?
TH: I remain very skeptical of the crypto investment thesis. I've heard many people come to this office and say, `Crypto is a great hedge against inflation.’ That has turned out not to be true. People come in here and say, `This asset is uncorrelated with other assets, thus it should be a part of an investment portfolio.’ We've seen that's not true.
CA: But you see a future, especially in payments.
TH: I'm much more enthusiastic about the transactional thesis of the product. And maybe we're not yet there for Bitcoin itself, given the volatility. We're not yet there for some of these other products, given the volatility that they've endured. But I think the technology itself, and some of these ancillary developments, such as stablecoins, could be used to accelerate payments, lessen the cost of payments and provide people with the opportunity to get exposure to the dollar…at very cheap costs.
CA: There has been a lot of attention to the ongoing effort by your committee to do a bipartisan stablecoin bill. Have you been involved?
TH: Obviously this is [Ranking Republican Patrick] McHenry's bill, and I take no credit for any work that he has done and his leadership on it. But I disagree with many of the committee's provisions in that specific bill. Industry disagrees with a lot of provisions. I don't think it's bipartisan, by the way. I think there are two partisan bills, and the effort to merge them into one has proven thus far unsuccessful. I won't speak for specific other members, but there are other members that share my concerns with even the Republican version of this bill, and certainly concerns with the Democrat version. My involvement was only very early. As they have gotten further away from what I believe is the right framework, I've been less involved.
CA: Do you think it's best to start with a small bill, rather than one that tries to cover the whole waterfront?
TH: I have been an advocate from day one, given that we don't know what we don't know, to be more incremental. I understand the desire by perhaps the chair and the ranking member to put their name on something that is a large, sweeping legislation, but this is a developing space. We should worry about the unintended effects of what we do. We maybe should worry about some of the intended effects of what we do. And we should also worry about the things that we can't predict at all.
CA: What do you think of the SEC agenda under Gensler?
TH: I have expressed publicly some deep concerns around many of the initiatives that he has instigated there…I disagree with him on policy. Some of them, I disagree with him on whether they're under his jurisdiction. Some of them I disagree with in that I believe he is accumulating new and previously unfound power to the SEC – and departing from traditional understanding of what the SEC is meant to do… (Friday)
Blackstone’s New Lobbyist: Blackstone, the private equity giant, has always had Washington pretty wired on the lobbying front. But the firm’s latest hire for its government relations team has some especially close ties to Democrats – he’s the son-in-law of Senate Majority Leader Chuck Schumer.
Michael Shapiro, a managing director based in New York, joined Blackstone from the Biden administration where he was deputy assistant secretary for economic policy at the Transportation Department. Shapiro also worked for Hillary Clinton’s 2016 presidential campaign, and in the Obama White House. According to his bio on the Blackstone website, Shapiro will be focusing on infrastructure investments and projects.
His 2016 wedding to Jessica Schumer was featured in the New York Times, which called their relationship a “real West Wing romance.” They met in 2011 while working together on the National Economic Council, according to the paper.
In a statement to Capitol Account, a Blackstone spokesman said Shapiro wouldn’t be lobbying his father-in-law.
“Mr. Shapiro is a highly talented individual with deep experience in both private equity infrastructure investing and public policy, and we are pleased to have him join our team,” the spokesman said. “He will not be involved in any advocacy before the majority leader or his office related to Blackstone business.”
Schumer’s office didn’t respond to requests for comment.
Just this week, Schumer handed private equity a potentially big defeat when he and Senator Joe Manchin came to an agreement on a climate and tax bill that seeks to narrow the “carried interest loophole” that allows PE partners (and some hedge fund managers) to treat investment gains they receive as compensation as capital gains, rather than higher-taxed income…. (Friday)
Gensler Goes After Token Trading Platforms: The SEC chair took to Twitter to make the case that crypto exchanges are in desperate need of regulation. The timing was likely not an accident, as the SEC chief works to capitalize on the momentum from last week’s landmark insider-trading case against a former CoinBase manager. (A gift, many observers have noted, that will boost the agency’s push for more oversight of digital assets.) The trading platform wasn’t mentioned in the three-minute video that Gensler posted on the social-media site – but its business model was undeniably a focus.

The short video is worth a watch, especially for those who sat through Gensler’s more studious (ok, dry) Massachusetts Institute of Technology lectures on YouTube… (Thursday)
Capitol Account Interview: The SEC chief gave a speech on issues confronting the accounting industry and then sat down with us (virtually) at an event held by the Center for Audit Quality to celebrate the 20th anniversary of the Sarbanes-Oxley Act. That’s, of course, the law passed in the wake of the series of accounting scandals at Enron, WorldCom, Tyco etc. Gensler advised the late Senator Paul Sarbanes as the measure was drafted, and he still takes a personal interest in how it’s being applied. And not surprisingly, he wants to make a few adjustments.
Among hot-button topics Gensler weighed in on are whether hundreds of Chinese companies will lose their U.S. stock listings, and whether accounting firms need new rules to prevent conflicts of interest between their auditing and consulting businesses. Gensler also took a strong stance on the controversial topic of how companies should account for the crypto they hold in custody. He wants it on balance sheet.
Here’s an overview of Gensler’s remarks:
China: Gensler added fresh urgency to the question of whether Chinese companies will be kicked out of U.S. markets, saying that a deal might need to be struck “very soon.”
The well-known backstory here is that China’s government has refused for years (20th anniversary remember) to comply with a Sarbanes-Oxley requirement that the Public Company Oversight Board have free rein to inspect the firms that audit U.S.-listed Chinese companies. That has not happened, despite some 50 other countries agreeing to the reviews. What that means is U.S. investors are buying the shares of these companies without an extra assurance that the financial statements are legitimate. (A reminder that there has been accounting fraud at Chinese firms that caused big losses for investors. One recent example: Luckin Coffee). Congress added sharper teeth to the inspection mandate at the end of 2020, stipulating that any company that didn’t comply for three straight years would be ejected. That set up a timeline for de-listings starting as soon as 2024.
In his speech, Gensler noted that lawmakers are considering legislation that would speed up the deadline by 12 months. If that becomes law, the PCAOB would need to be done with its inspections by the end of this year. One interesting challenge, he pointed out, is that PCAOB inspectors would need to follow quarantine rules.
Crypto accounting: The SEC has taken a lot of heat from digital token firms, as well as Wall Street banks, over agency guidance that lays out how public companies should account for crypto that they keep in custody for customers. The commission issued guidance (written by staff) in March that directs firms to record the fair market value of the coins on their balance sheets as an asset and a liability. Gensler has been hammered by a number of Republican lawmakers for what they see as setting policy in an important, emerging area without going through a normal rulemaking process.
Gensler, however, is not backing down. He pointed out that the SEC has issued more than 100 such “staff accounting bulletins” over decades. Thus, the crypto guidance “was consistent,” he said, with what the agency has done for years. He added that companies have been clamoring for instructions on how to handle crypto accounting, so this was far from some issue the commission just pulled out of a hat. Lastly, Gensler said the SEC must make sure that if token firms fail, customer assets would be protected, noting “we’ve had a number go bankrupt in the last two months.”
An inactive PCAOB: The SEC chair took some not-so-subtle shots at the accounting watchdog (though not its current leadership, which he appointed and is relatively new). The PCAOB, which is often described as the centerpiece of Sarbanes-Oxley, set up a whole new regulatory regime for auditors – who previously had overseen themselves. One of its earliest missions was to rewrite all the auditing standards that the industry follows, rules developed by the American Institute of Certified Public Accountants. Gensler called that setup “too clubby.” And he lamented that the PCAOB has left most of those standards in place, implying that he has lit a fire under the new board leadership to get the changes done. “I hope we can make some progress before Sarbanes-Oxley can legally drink,” he said… (Wednesday)
Financial policy debates are often staid, if not boring, affairs. Think of long-winded discussions in the basement of the SEC with outside advisory groups discussing the fiduciary rule for the umpteenth time.
But then there’s John Reed Stark, a former top enforcement official at the SEC, who’s made it a mission to call Commissioner Hester Peirce to account over her crypto boosterism. His increasingly scathing posts on LinkedIn and Twitter have captivated regulatory lawyers and the SEC alumni network. Many say they’ve been tuning in just for the spectacle of a former agency official so aggressively criticizing a sitting commissioner by name. Some say they’ve even urged him privately to tone it down.
Stark’s comments are unusually personal. Just yesterday, he called Peirce a relentless enabler for the “grifters of Big Crypto.” And, in May, he compared her to the “CEO of Marlboro blaming the FDA for lung cancer” after she complained that the SEC’s heavy handed oversight approach was stifling innovation.
Here’s a couple of Stark’s tweets:




Peirce, who as a Republican doesn’t have much influence on policies at the Democratic-led agency, has often used social media to disseminate her free-market views. That includes arguing that the government should take a more hands-off approach on digital tokens. The stance has brought her a measure of Twitter fame – she’s amassed more than 89,000 followers and been bestowed with the nickname of “Crypto Mom” for her support.
Though she declines to specifically address specific Stark Tweets or his criticisms, Peirce says she welcomes discussions from all sides. “My door is open to people of all viewpoints on crypto and other matters,” she says. “Vibrant, respectful debate about regulation is healthy.”
For his part, Stark says he sees the issue as one primarily of investor protection. He thinks it’s wrong for a sitting SEC official to defend an industry that’s “all a bunch of malarkey,” especially since many of those harmed by the recent crash are “people who can least afford” to lose money.
Stark, who spent 15 years as an enforcement lawyer and was the founder of the agency’s Office of Internet Enforcement, says he doesn’t regret any of his comments. But he adds, “if anyone has interpreted any of it as a personal attack, my view is that Hester is a brilliant thought leader and a dedicated public servant.” Still, he notes: “These people have made them her hero and she is enabling them. I don’t think that is appropriate for an SEC commissioner.”
Stepping back: Peirce isn’t the only regulator who Stark has gone after. He’s expressed particular scorn for ex-CFTC Chairman Christopher Giancarlo, who was similarly pro-crypto when he ran the derivatives overseer during the Trump administration (and was given the nickname “Crypto Dad.”) Giancarlo’s digital asset expertise was cited when he was awarded the rank of Chevalier in the French National Order of Merit in May – an honor that he proudly announced online. In a LinkedIn post, Stark said this of Giancarlo’s designation: “This is beyond shameless. This is beyond disgusting. This is beyond nauseating. The level of arrogance, hubris and ego is almost unquantifiable.”


“I found it so upsetting that you can accept a medal for perpetuating fraud and thievery,” Stark says. “I find it reprehensible.”
Giancarlo responds by email: “I do not know John Reed Stark or anyone who follows his work.” (Monday)