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Ep 67: The Future of Crypto Regulation with Heath Tarbert, Circle CLO and Former CFTC Chair
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What is the transition like from government service to a C-suite leadership role at a cutting edge tech company? How are regulators thinking about crypto and other financial innovations? And is public service something that's still inspiring or something that we ought to aspire to?
Join Heath Tarbert, Chief Legal Officer and Head of Corporate Affairs at Circle, as he draws on his extensive and prodigious career in public service–serving as Chair of the Commodity Futures Trading Commision, associate White House counsel, Supreme Court clerk, special counsel to the Senate Banking Committee, and more–to break down the legal side and wide-ranging impacts of financial markets around the globe.
Listen as Heath discusses the intersection between law, finance, and public policy, the future of cryptocurrency, the value of humility, and much more.
Read detailed summary: https://www.spotdraft.com/podcast/episode-67
Topics:
Introduction: 0:00
Building a career around banking and financial markets: 8:53
Being picked to lead the Commodity Futures Trading Commission: 16:50
Advice to young people considering careers in politics and public service: 22:13
Breaking down CFTC regulation of cryptocurrencies: 30:17
Why the CFTC chose to engage with cryptocurrencies: 37:26
Why Heath joined Circle as Chief Legal Officer: 41:40
Should lawyers move beyond legal into business operator roles?: 47:15
Rapid-fire questions: 49:16
Book recommendations: 53:31
What Heath wishes he’d known as a young lawyer: 55:21
Connect with us:
Heath Tarbert - https://www.linkedin.com/in/heath-tarbert-b2140a15/
Tyler Finn - https://www.linkedin.com/in/tylerhfinn
SpotDraft - https://www.linkedin.com/company/spotdraft
SpotDraft is a leading contract lifecycle management platform that solves your end-to-end contract management issues.
Visit https://www.spotdraft.com to learn more.
Recommended
Transcript
Heath's Unexpected Role at the White House
00:00:00
Speaker
So they originally hired me to sort of deal with constitutional issues involving the tensions between the presidency and Congress and the dispensing of information. When I walked in the door, they said, well, Heath, you've got this financial background. And the person that had the financial markets portfolio for the White House Counsel's Office left several months ago. We need someone to also just take that under under their remit. But look, it's at the end of an administration. We're not expecting much work there.
00:00:29
Speaker
you guess watch for so tyler yes so Two weeks later, Fannie and Freddie fail before we know it, Lehman Brothers collapses, and I became effectively the White House Associate Counsel on the financial crisis full-time.
Career Highlights and Introduction to Circle
00:00:51
Speaker
how are regulators thinking about crypto and other financial innovations? And is public service something that's still inspiring or that we ought to aspire to? Today, I am really pleased to be joined on the abstract by Heath Tarbert, Chief Legal Officer and Head of Corporate Affairs at Circle. Heath has a long and impressive resume. Before Circle, he was the Chief Legal Officer of Citadel Securities. He also had a distinguished tenure in government, including as the 14th Chair and Chief Executive of the Commodities Futures Trading Commission and as the Assistant Secretary of the Treasury for International Markets and Development. Earlier in his career, he served as a Supreme Court Clerk, Associate White House Counsel, Special Counsel to the Senate Banking Committee, and as a partner at two international law
Networking and Career Opportunities
00:01:47
Speaker
firms. I really need to thank my friend Flavia Navas, the former General Counsel of Circle, and a prior guest on my podcast for introducing me to Heath and making this episode possible. Heath, with that, welcome to The Abstract.
00:02:01
Speaker
Thank you so much for having me, Tyler. It's terrific to be here. I'm really excited about this episode.
Why Pursue Law?
00:02:07
Speaker
You went to law school, like many of our listeners and guests, and then you actually went on and studied more law. You can maybe explain what what that process was was like, how lawyers can study more law. What was it that inspired you to go to law school and become a lawyer? Oh, that is a very good question.
00:02:27
Speaker
um I think I'll give you both a philosophical reason and then maybe a practical reason that sort of shaped my thinking. That's cool with me. The philosophical reason is that, you know, as I was an undergraduate and in even a high school student, I was thinking about how critical sort of the rule of law is to society. and In other words, the way that our government is set up, the way that every aspect of our society is ordered is essentially through law, legal frameworks.
00:02:58
Speaker
And our destiny as a nation in many ways is a result of that. So the prosperity that we enjoy here in America in all facets, as well as even the technology that we're working on today, there's a reason why all of this stuff was essentially created in America.
00:03:15
Speaker
And our legal framework, our form of government, has everything to do with that. And you see other places that have remarkably intelligent people. They've got lots of wealth, but their legal systems don't allow sort of that balance between human freedom and responsibility and all the things that we talk about and and and cherish as Americans. And so that whole system of law and legal frameworks is critical to our society. And so I said, wow, that might be fun to get involved with. So I'd say that's It's the coolest topical reason that in some ways law touches every aspect of our existence and shapes it in
Versatility of a Law Degree
00:03:51
Speaker
an important way. The the more practical reality is is that and to be a law degree is perhaps the most versatile form of higher education, of of professional education. You can be a businessman if you have a law degree, a business person, um but you can't be a lawyer if you have an MBA, unless you also have a law degree.
00:04:13
Speaker
So the other thing from a practicality standpoint isn't and what i found and when i saw as i was an undergrad is that a lot of folks with law degrees were able to do a variety of things they ran businesses they were practicing lawyers they had an opportunity to go in and out of government service something we'll talk about a little bit more today and and so it was a much it's sort of a very flexible profession.
00:04:35
Speaker
And so I'd say those are the two reasons, the philosophical as well as the practical, that I went ahead and took the LSAT and threw my application into law school. I mean, that's a great worldview, right? Because you're thinking both sort of about, okay, I'm interested in all these things, right? Like, how can I maybe apply that in a really productive way? But you're also thinking sort of beyond just yourself, right? Like, philosophically, how can what I do also have meaning, not just doing something productive, but doing something meaningful?
00:05:05
Speaker
and I'm sure there was much more to it than luck, but earlier in early in your career, you were lucky to have the opportunity to work at some incredible institutions right that I may have listed.
Influential Mentors
00:05:16
Speaker
Sullivan and Cromwell, the DC Circuit, the Supreme Court, the White House, I mean, these are just one of those might make someone's career, make someone's whole career worth it. What I'm really curious about is if there were mentors during this time or or people who were particularly important to your experience and personal and professional development at those places, helped you figure out this this sort of world view. Absolutely. and In fact, I would say throughout every stage of my education and my career, even to this day, I still need mentors, and I still look upon advice and guidance. ah but Back then, so you you said a few things, you said Sullivan and Cromwell. Sullivan and Cromwell, I was fortunate enough to have, as my mentor, the first woman partner of the firm, Margaret Pfeiffer. She's retired today.
00:06:08
Speaker
taught me the importance of creativity. You know, I came out of law school and I knew how to read cases and and do lots of analysis. And she said, whoa, whoa, whoa, whoa. Like, let's think outside the box here. Let's think about human nature. let's Let's really understand some much more fundamental stuff than just the law that's written on the page. So that was incredible. Douglas Ginsburg at the DC Circuit was then the chief judge. He taught me how to be exacting in everything that I do, or at least help me to aspire to that. I don't always get that result. Imagine having the folks out there, for those of you that went to law school, the most scariest Kingsfield-like quadratic professor, and imagine you in the lecture hall with 120 people, and then imagine the 120 people going away and you sitting with him. That was basically Douglas Ginsburg.
00:06:58
Speaker
So it was a very rigorous tutorial in in how to think about the law. Clarence Thomas, you mentioned the Supreme Court. What a wonderful man and a great jurist principled person. From him, I learned the importance of humility. ah Despite his high stature, he took the time to learn every single name of the employees of every single employee at the at the Supreme Court.
00:07:22
Speaker
the janitor, etc. ah Just a very, very humble man despite the kind of power that he wields in ah in a town that worships power, Washington. And then finally, I'd say at the White House Counsel's Office that you that you there was a gentleman by the name of Fred Fielding.
00:07:39
Speaker
Well, Fred Fielding is probably the greatest counsel to the president that ever was. He was deputy counsel to Nixon, counsel to President Reagan, and was brought back in at the end of the Bush administration when the administration was going through a rough time to basically for the president. And from him, it's interesting, because I i apply this every single day, I learned the importance of legal advice versus prudential advice.
00:08:02
Speaker
Every associate counsel and in in the office was allowed to dispense legal advice as we sought fit. But if we were going to give prudential advice, now, what's that? It's basically, well, the law says this, but you would be a complete idiot to do that. Absolutely critical, as you can imagine, in a town like Washington, when when the law you know is one thing, but the the reality of every other factor is something quite different. And so Fred really helped me learn that distinction.
00:08:31
Speaker
And that's a distinction that I deployed to this very day where I would say 80% of my advice is is not really legal advice or if it is legal advice, there's a major prudential overlay that says.
00:08:43
Speaker
This is what the law says, but this is what I think the right thing is. So all of those mentors early on, I think really shaped the way that I viewed life and the practice of law. I think we'll talk more about this concept. I like that phrasing, prudential advice, as we talk about sort of lawyers as leaders throughout our conversation
Impact of the 2008 Financial Crisis
00:09:01
Speaker
today. But you mentioned being at the White House in sort of the final years of the book, Bush Presidency, 2008. I think as folks remember, this was a time of sort of financial crisis, recession, markets were in turmoil. What was it that led you to start to build a career or focus around banking and finance and and markets? Was that timing, right? The fact that we were in the midst of the Great Recession or did you want to do that for a long time?
00:09:28
Speaker
<unk> ah It's a it's a it's a great question. So I had started off my undergraduate was in accounting and finance and I had studied that and even in law school, I aspired to be a corporate lawyer. And I wrote my dissertation for I ended up getting the SJD because I thought I wanted to teach someday on the Basel Capital Accords, which at that time,
00:09:50
Speaker
were completely unknown. Today they're still arcane, but in the aftermath of the financial crisis, you know you you see them discussed on the pages of the Wall Street Journal and even to some extent on things like the New York Times and the Washington Post. But then i my career took a turn and I had done these clerkships as we discussed.
00:10:07
Speaker
And I entered the White House Counsel's Office in ju late July, I believe, of 2008. And eight I was brought in because at my time, ah both at the at the court, but also I did a stint at the Office of Legal Counsel was focused on the law of executive privilege. So they originally hired me to sort of deal with constitutional issues involving the tensions between the presidency and Congress and the dispensing of information.
00:10:33
Speaker
and When I walked in the door, they said, well, Heath, you've got this financial background. And the person that had the financial markets portfolio for the White House Counsel's Office left several months ago. We need someone to also just take that under under their remit. But look, it's at the end of an administration. We're not expecting much work there.
00:10:54
Speaker
you guess flash so tyler yes so Two weeks later, Fannie and Freddie ah fail. Before we know it, Lehman Brothers collapses, and I became effectively the White House Associate Counsel on the financial crisis full-time.
00:11:09
Speaker
And so it's one of those great examples of you not choosing a path in life, but that path in some ways choosing you serendipitously. And from that point in time, I said, well, this is fascinating. I'm going to devote the next few decades of my life to thinking about that intersection of law, finance, and public policy.
00:11:27
Speaker
That's fantastic. I mean, and I think that's how a lot of people's careers sort of end up is they may have an interest here, or they may have done something there that causes them to get picked for something here. And then, you know, the whole trajectory sort of changes from what they thought, but in a really meaningful and interesting way And as you said, you continued to focus on this after the
Bipartisanship in Financial Legislation
00:11:50
Speaker
White House. When you go to the Senate, I think maybe the most notable piece of legislation that you worked on, although you can correct me, is Dodd-Frank. That was about 15 years ago. i'm I'm just curious if you can sort of like take us back to those negotiations, now Obama's president, right? And also given the benefit of hindsight, you know, what are you sort of proud of accomplishing? And do you feel like this sort of legislation, landmark legislation that you worked on is
00:12:16
Speaker
is working today. Yeah, so when I go back then, you know, technically, we were in a number of negotiations to sort of, but to to sort of figure out what was the right response to the financial crisis, while understanding that in many cases, the response to the last crisis became the impetus for the next, right? And so thinking about all of that,
00:12:37
Speaker
A lot of the work that we did ended up in one form or another in the Dodd-Frank Act, but ultimately I was on the, then the minority side and we ended up not supporting the act in the end. i think I think there are a number of things that the Dodd-Frank Act did that that were that were good.
00:12:53
Speaker
that were very good. But I think the tragedy in some ways of the Dodd-Frank Act was that it wasn't viewed as a broad bipartisan piece of legislation. And that was an important lesson I learned because then what happened was, is that because it wasn't viewed as a brought ah you know ah something that had been passed with broad bipartisan support,
00:13:12
Speaker
aim a fight every two years. And ultimately, you saw in the Trump administration, you know, we're going to repeal the Dodd-Frank Act. And of course, the whole thing doesn't need to be repealed. But essentially, because it was not viewed as being I see the thumbs down. I'm not sure. I don't know why Zencaster has that built in.
00:13:33
Speaker
but But interestingly enough, I think you know some of those provisions, though, were bipartisan. For example, Title VII that dealt with derivatives, I ended up administering that later on in my career as CFTC chair. But I think one of the great lessons, and this is a lesson that we really need to think about today, particularly about the revolution in digital assets and the need for comprehensive legislation, it really is important that that legislation is purple.
00:13:59
Speaker
because we don't want a situation where every two to four years, one party or the other is trying to reverse it because they view it as simply a partisan piece of legislation. And unfortunately, I think that was what happened with the Dodd-Frank Act. yeah if If there had just been a little bit more bipartisan support and cooperation, and again, I don't pin that on one side or the other. I think both sides would have done better there. I think you would have had much more stability in the financial sector would have grown safer, but also more resilient and more prosperous as a result. So I think one of the big lessons of the Dodd-Frank is try to get broad bipartisan support. Yeah, I actually have a follow up there. That's a really interesting point. And you think around something potentially like how cryptocurrencies are classified or maybe not quite as hot button as a large piece of legislation right after a huge sort of financial crisis. Are there ways that you feel like corporations or people in your shoes can help make that process more purple. I'd be curious from where you sit today, what you think you can do to to sort of help make things more bipartisan in Washington.
Creating Bipartisan Legislation in Financial Regulation
00:15:11
Speaker
Yeah, so I think it first starts with being reasonable.
00:15:15
Speaker
ah boing things that no, that that that address real concerns that are out there, particularly in the wake, for example, of, you know, sort of the crypto winter, obviously, a ton of stuff going on in crypto, which just wasn't right. And in many ways, these things repeat themselves. There was fraud, there was manipulation.
00:15:34
Speaker
there were bad actors. And and we just need to concede that and say, yes, that very much is the case, but in part because we don't have the kind of regulatory regime that we'd like that you know has invites the good actors in and crowds out the bad actors. But unless you acknowledge that, you know, you're going to lack credibility. And then I think understanding where everyone's coming from and what the interests are to see if there is a way to sort of thread the needle where the country is better off but but everybody feels like at the very least they've been heard and and their point of view has been taken into consideration. And so it requires unfortunately a lot of listening before you act.
00:16:16
Speaker
And I think there's an impetus for action in both sides. Unfortunately, it's become kind of a zero sum game where one side winning on something is viewed as the other side losing. And so unfortunately, the dynamics are what they are. But I think in time, we'll move back to, you know, sort of an older style of doing business in Washington.
00:16:38
Speaker
where people are reaching across the IMR, I think that's good, for particularly for certain items like this that are meant to stand for 30 and 40 years. i I couldn't agree with you more on that. I also couldn't have you on the podcast and neglect to ask about your time as chair of the CFTC, which may not be a household name, but you know derivatives, which I think people know about from the financial crisis, futures swaps, I mean, these represent like,
00:17:06
Speaker
hundreds of trillions of dollars of notional value in the markets. You can correct me if that figure is wrong. I guess my first question really is, like what does the CFTC do in your own words and why were you picked to to lead
The Role of the CFTC
00:17:21
Speaker
it? yeah well Well, first of all, you're spot on, Tyler. I used to say that the CFTC is the most important financial regulatory agency that the vast majority of Americans have never heard of.
00:17:33
Speaker
um And they haven't heard of it in large part because as you said, although it regulates what are arguably the largest markets in the world, those markets are the derivatives markets. So they're one step away from the real economy. But that step and is critical. So although futures swaps and options are not something the everyday person is involved with or trading, it's that set of derivatives that determine how much gas you pay at the pump, what we pay for bread in the supermarket, all sorts of other folks, all sorts of other areas, everything from corn to crypto effectively is is in in many ways affected by the derivatives markets. And so regulating those markets, making sure they're working efficiently, they're free from
00:18:21
Speaker
manipulation is absolutely critical to the function of the real economy. And so from the mortgage that you pay on your house, you name it, basically the derivatives market in some form or another affects it. And so why was I picked? Well, part of this is I can't necessarily tell you why. like The old saying goes,
00:18:42
Speaker
But one thing that happened was this so so sort of here is the nexus i was at the treasury department in the international markets running the international markets part of it as as as you mentioned i sat at that time on the financial stability board so my focus was on international finance and that was my background. ahha Traditional ss CFTC chairs either came from agriculture or energy. Traditional international finance was not something. And in many ways, they came to the job from ag or energy. They learned international financial regulation. What happened was, is that in the breakup of the European Union,
00:19:18
Speaker
The United Kingdom was going one way, the European Union was going another way. And there was a huge debate out of how to regulate the largest clearing houses in the world and what the regime would be. And so clearing houses are basically where all the derivatives end up at the end of the day and everything is settled. So if you can think about what could possibly be the most systemically interconnected things in the world, it are these clearing houses.
00:19:43
Speaker
hi That international debate then affected the CFTC. And they went to the White House, my predecessor, and said, we need a chair that understands the international frameworks so he or she can negotiate and come to a a unified position vis-a-vis Europe and the United Kingdom. So that is why my name was in the hat.
00:20:05
Speaker
for the job. And so I came in the opposite of most people. I had to go out and learn the difference between ah hard red spring wheat and and soft wheat and all of that sort of stuff. But in the end, my job was to settle the international frameworks. And so that that is eventually what I did.
00:20:22
Speaker
That's really interesting. What do you think, with that in mind, maybe you're most proud of having accomplished in your time at the CFTC?
Handling the COVID Crisis at the CFTC
00:20:30
Speaker
Well, I didn't have too long there. I had under two years. Close to about a year and a half. We had 20 open meetings during my time there. i wanted the i Because of ah the somewhat obscure nature of of the agency, despite its importance, I wanted to be out there in public.
00:20:47
Speaker
with the agency so we had twenty open meetings which was more than the agency had in the prior seven years combined we passed wow forty forty one i think final rules we have the largest enforcement here ever so we did a ton of stuff but if you're gonna ask what what am i most proud of i would actually say the agency the men and women of the cft sees work during the covert crisis.
00:21:10
Speaker
So basically, in the first couple of weeks of COVID, the markets had more volatility than they had had in the global financial crisis, right? Think about it. Sure. Price of oil went below zero for the first time, perhaps in human history. ah um and and so There was a ton of things going on. And these markets had to function critically, because these are the markets where everybody in large companies, but even farmers and ranchers go to lay off the risk. And so the men and women of the CFTC literally worked 18 hour days in some cases, maybe even more than that, to make sure these markets were functioning well, and working with our foreign counterparts to make sure we understood what was going on everywhere in the world. They did this despite the fact that their kids were home from school,
00:21:59
Speaker
They had relatives in some cases that had contracted COVID. It was a tough time for every American, but this agency, so I like to say it was those few weeks that I think were the agency's finest hour.
00:22:11
Speaker
That's really impressive. Chair of the CFTC, I think, as you mentioned, is ah is a political appointment, right? So when President Biden was elected, you stepped down. That's why you had little less than two years there. I think being a political appointee, unfortunately, and this goes sort of back to our conversation around purple politics, maybe a little bit of a lack thereof in Washington these days, being a political appointee is maybe more difficult or Choosing a career in politics is less palatable than it might have been a few decades ago. I think actually, unfortunately, like some talented younger people are opting out of that. and What would you say to them? And do you still feel like public service is a worthwhile endeavor or career choice for
Stoicism in Public Service
00:22:59
Speaker
people? The short answer is yes. I am incredibly fortunate to have had the positions that I've had. I consider it an honor.
00:23:07
Speaker
and i'm I'm deeply proud but to your point it's not easy and it's getting less easy everyday goes by i think you know i in the last five years or so i have started to slowly become a big believer in the philosophy of stoicism. and ah Stoicism isn't just simply you take a beating or whatever, but rather it's essentially checking your ego at the door. You've you've got to do that with with these positions because a lot of your stuff is out of your control. The basic principle of stoicism is understand what's outside your control and understand what's in your control.
00:23:46
Speaker
and forget about all the stuff that's outside your control, just focus on what's in your control. There's a ton of things that are totally outside your control. You could be the most well qualified candidate on earth for any particular position, but it doesn't matter because there are other things at play. There's partisan debates, there's there's regionally, there's all sorts of things that again are totally beyond your control. And unless you understand that and accept that as a reality,
00:24:12
Speaker
it can be a really, really hard road. But by the same token, the things that were are within your control are extensive if you are able to hold a position in the public trust, right? Things that I do as a private sector lawyer that I did as ah that as as a as a law firm partner, they're nothing compared to the ability that I had in these positions to shape public policy, to shape the development of the law ah that we talked about the very beginning of the conversation. And so I tried as best I could
00:24:45
Speaker
to take all of the drama and all of the squirrels of Washington. I mean, they'd they'd come after me forever. I mean, it's just the way it is. It's just the way the team is set up. But so I had to just sort of take all that and push it to the side and say, what am I here to do? And let's focus maniacally on getting the job done day in and day out. And so if you've got that attitude, you can enjoy the job, you can get stuff done, and you can be proud.
00:25:11
Speaker
But it is very different. It's a very different life than civilian life, as as I'd say. So you can be proud of your accomplishments, right? Like feeling like we accomplished this and it was meaningful for people beyond me and my immediate family or my immediate coworkers.
Challenges in Public Service Leadership
00:25:28
Speaker
Yeah, that that sort of tour of duty almost. I mean, I would imagine there were moments of real stress at the CFTC, maybe that time during COVID. Anything else that you would say about how you were able to navigate some of the pressures of being a public figure, the type where, you know, I don't know about the New York Times, but certainly the Wall Street Journal wants to understand what are you thinking and what are you going to do? And do we agree with it or not?
00:25:54
Speaker
Yeah, at at some point, you have to make a principled stand. and And those times are difficult. and And you but you've just got to do it. So we talked about COVID. And again, that was, I think, our finest hour. When I first joined the agency, we had a 30 day we had, you know, sort of a ah plan, you know, 30 days, 60 days, 90 days, or whatever, I had a 30 day plan. And literally, we followed it to a T. It went great. Day 31, all hell breaks loose.
00:26:21
Speaker
right which Which, again, is to be expected. That was enforcement case with with a large American company. And in the enforcement case, in the settlement, we said that you know we would not talk about the substance of the settlement or the you know a bunch of things that we had said we weren't going to do. The agency abided by that settlement. But commissioners have the ability to speak in their own capacity and not find the agency.
00:26:50
Speaker
ah Who of my commissioners, both Democrat appointees said a bunch of stuff about their views of the case and the culpability of the the company that we settled with. Well, the court went ballistic and called those two in for contempt.
00:27:06
Speaker
and also said well let's drag the chairman in two because he's in charge of the agency and so literally we had this sort of dramatic court battle playing out the wall street journal covered it this is sort of again day 31 in in the job or whatever but ultimately The two commissioners were correct. They did have the absolute right under federal law to speak their mind and not be filtered by the rest of the agency. And and that sort of that freedom of speech, but also the ability of policymakers to be able to to to say what they needed to say,
00:27:41
Speaker
was something that that couldn't couldn't be overridden, except for an act of Congress. And so I went to battle for my two commissioners and for the agency itself, and we actually ended up filing a writ of mandamus. So those listening to the abstract, well, wait a minute, a writ of mandamus? Yes, Marbury D. Madison. So essentially, though, you know you're in trouble when the only thing you can do is file a writ of mandamus.
00:28:07
Speaker
ah the The media is following this case. We follow a writ of mandamus. Well, eventually we actually won. So the Seventh Circuit here in Chicago actually granted the CFTC the writ of mandamus. The commissioners were allowed to speak. ah the The contempt proceedings were withdrawn. But anyway, it was just a great example of something that I never in in my wildest imagination would have thought I would have gotten thrown in the middle of this court saga that was playing out.
00:28:37
Speaker
first in the Wall Street Journal and then in the in the pages of various you know legal publications. But again, I had to make a stand. i And in these, again, were the Democratic appointees. I'm the Republican, so I'm like,
00:28:49
Speaker
These guys are causing me enough trouble at as it is. I'm proceeding against me, but it was the right thing to do. and And it also bound us together as a commission and as an agency. Those were not tough. or Those were not easy early days. I can imagine. I mean, you're taking the long view there, right? And you're saying, well, what if I was in the minority on this commission someday in the future and I want the ability to speak out and now you're choosing to make your life more challenging in the short term, but hopefully for the right long term outcome or the sort of rule of law that we were talking about very early on right in the in the podcast.
00:29:29
Speaker
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00:30:06
Speaker
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Cryptocurrency Regulation
00:30:32
Speaker
And you may be able to explain that in more depth than I can in my reading. I'm not a deep expert on the intricacies of SEC, CFTC, other sort of regulatory authority around crypto. Is that where this stands today? And I guess part of that is, you know, where does the SEC fit in? And also maybe where do you think ultimately, this debate about classifying cryptocurrencies should end up? Yeah, so maybe I start at a high level, and then we'll dig down a little bit. so
00:31:01
Speaker
First of all, the CFTC and the SEC are really important agencies that look at different markets, obviously. So the security market for those for those listeners who are lawyers in other areas aren't financial lawyers. The SEC's focus is on the securities markets. I'm sure they work. So essentially, these are companies issuing largely at a high level.
00:31:23
Speaker
stocks and bonds. And so when you have that kind of market, first and foremost, you want to make sure that the information about those stocks and bonds is out there in the marketplace. And it's accurate. and People understand what's going on, because the issue really matters. You're invested in something, whether it's a stock or whether it's a bond, you're investing in an organization of of some sort, eventually, the commodity markets are very different.
00:31:49
Speaker
So commodities are not based on the people behind the commodity. you don't go When you go and get your gas, or or maybe you have an electric vehicle, but let's just say you you go and you and you go to the gas tank and you see 87, 91, 93, you don't ask yourself, well, how is Exxon doing or how is Costco doing? You just assume it gases gas everywhere, right? And so the commodity markets are really about making sure the markets themselves, the mechanics are working,
00:32:17
Speaker
and that the commodities are in fact fit fit the description of whatever commodity they are. aha So just just take that and pause it for a second because when we get to crypto, that distinction actually matters. The SBC and the CFTC, despite looking at at two very different markets,
00:32:35
Speaker
derivatives are on both securities as well as commodities. So the CFTC has regulatory jurisdiction, not over commodities, but over derivatives on commodities. So there's a little bit of a distinction there. So if something is a commodity, the CFTC doesn't actually regulate it until there's a future swap or option traded on that commodity with a couple of exceptions. However, it has the ability to police this what we call the spot commodity markets for fraud and manipulation because they can affect the derivatives market. So there's regulatory jurisdiction and then there's sort of enforcement manipulation jurisdiction, which covers derivatives as well as the underlying commodities. Any sense? Securities, whether they're derivatives or securities traded on the primary or the primary markets or or spot markets, so to speak. so then the So the two agencies really, however, need to work together. so
00:33:30
Speaker
I had a very good relationship with the chair of the SEC, Jake Clayton, who I had met years before, ah who was my summer associate mentor at Sullivan and Cromwell. And so it burned out, but 20 years later or whatever, we're working together once again. So that really helped. But we had, for the first time in the history of either agency, an open meeting where we worked together and we actually passed some harmonization rules.
00:33:59
Speaker
Not dealing with crypto but dealing with other security based and other swaps basically so when you get to crypto now to start with the question that you raised is the real question is is it a security or is it a commodity and essentially what it boils down to is is the thing intrinsic in and of itself like a commodity Right. Therefore, like Bitcoin, Bitcoin's price is not affected by anyone standing behind Bitcoin and changing Bitcoin. Bitcoin is what it is. So natural for supply and demand determine the value of Bitcoin.
00:34:35
Speaker
Let's take another token, let's say, that's issued by a company. And the token's value is based on the move that the company is making. You know, is the company building a large network? Are they doing nothing? Right. And so you get to the test called the Howey test, which basically says, when it all boils down to, is are you investing in an enterprise, the result of which the investment proceeds are based on the efforts of others, right? And so think about that as a basic distinction in kind of non-legal terms. Are you investing in something and you're depending on a group of individuals to make it work? Or are you buying something that everybody kind of wants and knows its intrinsic value? And then the question is, is natural supply and demand?
00:35:24
Speaker
That's the difference between a security and a commodity at a high level. And that's sort of what each digital asset is undergoing, that kind of analysis to figure out where it goes. I think that the SEC regime is the right regime for things that are securities because you do the information and disclosure about those efforts of others.
00:35:45
Speaker
the people that are actually determining in some ways the ultimate value of what you're buying. But if what you're buying date is totally decentralized, it doesn't depend on a group of actors that are actually writing the code, minute you know whatever, but rather it's it's much more dispersed, it's much more like a barrel of wheat, ah sorry, a yes a basket, a bushel of wheat, et cetera, or a barrel of oil, then it's it's it's a commodity.
00:36:15
Speaker
That's a very interesting and what it highlights for me is why people who have an understanding of both sort of the law and also economics are so important in determining what the right outcome is here because it's not just about perhaps what sort of regulatory authority do we want. or it's also about what what is the what is the asset in question, right? If that's the right word. And also what are the sort of incentives that we want to create or that we think are really important in the in the market, right? Is it really important for there to be free flow of information or is this more akin to going and buying a barrel of oil? I mean, I think that's it's a fascinating space for you to be in given your background and your sort of unique vantage on both law and markets.
00:37:04
Speaker
Yeah, and something like stablecoins, which is what circle issues are essentially neither. They're neither a security or a commodity, but rather they're the equivalent of money, of fiat money. I mean, I guess a follow up question there. I mean, you have this great background, right, that that makes you well positioned or made you well positioned also when you were at the CFTC to understand this.
Blockchain's Potential
00:37:26
Speaker
I do get the sense that there are some people maybe in government or even at larger financial institutions who almost don't want to touch crypto or don't want to deal with it or think so think that it's a flash in the pan. I would imagine as chair of the CFTC, just because something is there doesn't mean that you have to decide to engage with it and regulate it or or think about it, right? What was it that made you want to engage on this on this topic? Because there is no choice to engage.
00:37:56
Speaker
topic. So it's funny that you say that yes, people would love to turn their backs, particularly the large financial institutions in many cases. <unk>s Think about 25 years ago. Yeah, I guess that's about right. Remember when we had to pay for long distance calls? Remember when we had to buy phone cards? And so obviously, the telephone companies, you know, loved life before the Internet. But once the Internet truly came, you and I are speaking freely. Can you imagine how much this would cost, even if it was psychologically feasible, if we had if we had done this at an age where it was it was run by the Bell system or something. And so what you essentially see is this and people are like, what is crypto? And I'm like, let me explain it to you at the highest level.
00:38:42
Speaker
It's simply this. It is a merging of the internet and the financial system. That is what digital assets are. So rather than using the slow antiquated system that charges you money, you can actually conduct financial transactions, actually have value move over the internet. Now, we never had that before until the advent of cryptology, right? Because the problem is there's two there's two big barriers.
00:39:10
Speaker
the first is regulation but that will go away with time if the technology allows it to be as safe and sound as the traditional financial system the second was the trust factor right in many ways the biggest issue which is Like the reason I interact with my large bank is I don't trust people over the internet. um One thing to send an email or a voicemail over the internet, it's quite something else to send my money over the internet. but It's not a terrible impulse, by the way, right? Right, it's not at all.
00:39:42
Speaker
And so it's blockchain technology and the underlying cryptography that allows for the trust factor to be there so you can transact safely and securely over public blockchains, over the public Internet. Right. And so at a high level, that's what crypto is. It is a merging of the Internet, which has affected every other industry in the world. Finally, also impacting the financial system.
00:40:08
Speaker
And that impact is going to be tremendous and it's going to be good for the world. It will take out, first of all, it can reduce systemic risk. We don't have, you know, four or five large Goliath institutions in the middle of things anymore that are too big to fail. If we have a centralized internet, we actually can trace all sorts of payments. So in terms of AML, CTF.
00:40:31
Speaker
It's far better than cache and traditional systems. The vulnerabilities, right, these these large old systems, ah you know, are much worse at cyber risk than an internet platform that is constantly iterating, right, and constantly getting better and better and growing.
00:40:47
Speaker
And then you've got things like tons of people that are left out of the financial system. My understanding is even when you look at the American population, we've got large swaths of people that can't get a bank account, and therefore it's very difficult then for them to transact.
00:41:03
Speaker
but they can have a wallet with with digital money in it, right? and And when you get outside the United States, that becomes even more true. I think 50% of Mexicans don't have a bank account. And when you go outside of even North America, it's much more difficult, particularly difficult for people in places like Argentina and other countries to get their hands on dollars and repose just their domestic currency, which is kind of which is subject to severe in hyperinflation and depreciation.
00:41:31
Speaker
And so I think this this this has the ability to radically transform the world for good, just like cell phones have and other forms of internet communication. What was it that led you
Circle's Mission and Digital Currency Vision
00:41:42
Speaker
to Circle? I mean, you have this interest, you've been working on sort of these problems in government. You spend time at Citadel, which I guess we're passing over a little bit, which is a very sort of large investment firm, also a very important institution. But what was it that led you to want to do this more full time and join the team at Circle?
00:42:00
Speaker
Yeah, well, Circle is a mission-driven company. and And ultimately, they were started 11 years ago with the idea that if you are able to transact value over the internet, ah similar to what I said before, it's something called the prosperity thesis. That if you think about when email and other internet communication came about, the degree of human interaction and communication rose exponentially.
00:42:27
Speaker
And if we can figure out a way to harness the power of the internet to actually, ah for economic activity where there's real money movement over the internet itself, we can actually expand GDP considerably because there's far more human interaction between far more people than ever before. And so circle was was sort of the impetus of circle itself is if we can figure out a way to move money over the internet in a safe and secure manner, just as safely as you send an email, the world will be better off and and we can make that sort of happen, right? And so Circle in some ways has the most boring product in all of crypto. It is a dollar.
00:43:09
Speaker
We didn't come up with a coin. There's no dogs on it. There's none of this sort of stuff. There's no Picasso and an NFT. It is literally a way to take US dollars and we also have euros and basically make them safe and reliable and have them go over over the internet, over public blockchain technology. And so I saw this coming when I was at the Treasury Department representing the United States at the Financial Stability Board.
00:43:38
Speaker
Facebook, through its a Libra project, had sort of initially said, ah, we think there could be a new global currency in the world. ah That did not go over well, because the central bank sitting around the table with me were like, yeah, we're the people that decide which which of the global currencies. right and So circles view is no, we're going to stick with a fiat currency, we don't need a new kind of currency. ah We just simply need the currencies that we have today.
00:44:05
Speaker
to be able to go over public blockchains in the form of one to one back stablecoins. And so I asked myself the question when I was thinking about getting into this this arena. Number one, which company is best positioned to realize that future of the Internet financial system? And number two,
00:44:23
Speaker
which company is actually going to do it the right way in a regulatory first way? And the answer to both of those questions was circle. So that's why I'm there. It seems almost inherent in the the design of the offering that would be appealing to regulators, right? That it's so almost taking their concerns or central bankers, right? It's taking their concerns into consideration, which is to say like,
00:44:44
Speaker
and no You're going to control the money supply, and you're going to control you know how dollars and euros are exchanged, and right and we're going to provide a way or an infrastructure for this to happen digitally, so that way people who can't access dollars today might be able to access dollars in the future.
00:45:03
Speaker
A hundred percent, and it's important for the future of the U.S. dollar as well. You know, we are we are starting to see a future of Web three, right?
Strategic Importance of Stablecoins
00:45:11
Speaker
It's the next generation of the Internet. And as I said before, it's sort of an Internet financial system. Other countries like China and Russia understand this. They are coming up with their own digital versions of their currency.
00:45:23
Speaker
Now, I think in the United States, I don't see us having a Federal Reserve digital dollar for a variety of reasons, most important privacy concerns, but all sorts of other reasons as well. And let's face it, we have the most innovative private sector in the world by far.
00:45:38
Speaker
We don't have the most interact and in ah and innovative government. So if you're going to have a ah sort of a great leap project, you're not going to have the government do it. Right. And so this is a way where the government can can have their currency backing stable coins like one for one, but essentially be able to harness the private sector to get dollars in the US dollar on the Internet and around the world. So it's an important relationship.
00:46:03
Speaker
And I think at a company like Circle, the government affairs and regulatory work that you're doing is actually totally critical to the business strategy and to the the sort of future growth prospects for for the company. What are you most excited about working on at at Circle today?
00:46:21
Speaker
I feel like there's so much excitement to go around. We're doing things. But what I like the most is actually explaining what we do to all people, because I do think it is a very important mission. And once people understand it and get it, they say, yeah, that's that that's what we should do. And although you know I want Circle to obviously be the leader in this technology, we welcome other entrants into this as well, because it's it's not just going to be a single private sector stablecoin. The more folks you happening in this industry,
00:46:50
Speaker
The more other people we have building on sort of, for example, our stablecoin network, USDC, but even others iterating, the faster this is going to grow. So it's really important. So a lot of what I do is to help build these partnerships and and and get everyone working on harnessing this new technology.
Legal Expertise in Executive Roles
00:47:09
Speaker
Maybe a last sort of substantive question for you before we get to some fun ones. What we're talking about there is isn't something that only a lawyer can do. I mean, it's something that a lawyer may be very well positioned to do. It's also you moving beyond sort of the the lawyer box of I'm giving legal advice. You're really talking about like, being an operator in the business or being a leader of the business on a slightly wider stage. I think you probably agree with that, but feel free to tell me if you don't. When did that start to become clear to you? And and why do you think that it's important for others, maybe other lawyers, to be able to view themselves in the same sort of leadership role or way?
00:47:53
Speaker
That's a great question. I mean, and you're seeing more and more either lawyers, general counsels or just people with a law degree end up taking roles at companies that are CEO, COO, other roles, and not just simply sort of the traditional legal roles.
00:48:08
Speaker
I think of myself first and foremost as an executive and a leader and a manager and sort of a lawyer second and as chief legal officer. So it's interesting. It's a different title than general counsel. I am the global general counsel, but chief legal officer denotes the idea that you are also part of the executive team. You're on the executive leadership team and your job is to help drive the business. You use your background as as helping to shape it. And when you have an industry that we have where the law is either unclear or in a very developmental phase, that becomes a key part of your strategy, right? And so so so so in some ways, this has the ability, and then obviously, if we're able to change laws and push for new regulations, that's a huge value unlock for the company and for the industry.
00:48:58
Speaker
And so that is largely my focus. I still do the day-to-day law and I'll review the legal memoranda and we'll have the issue with that stock and all of that kind of stuff and Delaware corporate law and all those good things. But I would say fundamentally, my job is to help drive the business. A few fun questions for you now, Heath, as we start to wrap up.
Variety and Strategic Thinking in Heath's Role
00:49:20
Speaker
My first one is what your favorite part of your day today is.
00:49:24
Speaker
Oh, that is a good question. I'm not sure I have a favorite part. I love the variety. I love the variety. And essentially, I tell people now that I used to be 10 years ago, my job was to be the you know one of the nation's experts. And in my case, it was the Bank Holding Company Act, certain aspects of Dodd-Frank, the Volcker Rule, all these sorts of things. And I sold myself to the world as, if you need an expert,
00:49:53
Speaker
you I am your person. And then of course, I went into the government, I did all sorts of these other things. And now I am literally an expert in nothing. I like i don't know, I don't know anything other than how to apply common sense at a strategic level to get where we need to get. And so I'm constantly interfacing with all sorts of aspects of law, IP, employment,
00:50:19
Speaker
ah corporate law and obviously financial regulation, which was my you know sort of expertise. But now I'm dealing with financial regulation in Singapore, in France, in places where I can't hope to be an expert. But I like the idea of then using that lens and saying, look, from it like I know the company's strategy. I know what we want to do, what we want to accomplish. So I'm combining that with what I'm what what i'm learning from the legal experts in an area and thinking about, all right, now, how do we shape this into a strategy?
00:50:49
Speaker
and an action plan to move forward. And that's fun. And I'm sure you have a lot of great experts who you get to work with and learn from and who will pick up the phone and answer your call when you need advice in a new area of law or a new jurisdiction. A lot of other folks you can rely on there. Your job sounds more fun to me. Given the rates that we're getting there, they're always happy to pick up the phone. I mean, I can assure you of that. So I have a bunch of budgetary responsibilities as well. But no, it is really fun as a general counsel or in that role to be able to get your hands and call any expert that
Professional Pet Peeve: Arrogance
00:51:24
Speaker
you'd like. Do you have a professional pet peeve?
00:51:27
Speaker
ah probably arrogance. No, in all seriousness, it's dangerous, and it's costly. And you see it a lot. I've always, as I said, I've sort of tried to embrace stoic philosophy. And one of the nuggets that I've gotten from that is Every person you interface with is superior to you in some way if you just think about that it's true right matter who you it doesn't matter you go to the hot dog stand you buy a hot dog that hot dog guy knows a hell of a lot more about hot dogs than you but he probably knows a lot more about the city about the streets.
00:52:06
Speaker
about you know whatever. And so so if you take that philosophy and you bring it to bear in every human interaction, that will sort of reduce that that you know thats but the possibility that you sort of your ego gets the best of you. The other thing I mentioned earlier on was how Justice Thomas really stresses humility. And when I think about that, this is again one of the most powerful people in the country. In some ways, he is now the most senior, apart from the Chief Justice, but in terms of years, the most senior justice on the Supreme Court. And his judicial philosophy has shaped hundreds of of other judges in the United States, of appeals judges, of district judges, and he's also influenced the other justices, right? And so
00:52:51
Speaker
This is a man who who is arguably, at this point in time, the most powerful conservative in the United States and maybe the world, but he is still a very humble man. So when I think about that, I'm like, if Justice Thomas can be humble, learn from him. And the ultimate reason for this, even if you don't buy humility and you say, oh, that's that's an outdated, you know, Judeo-Christian thing, whatever.
00:53:16
Speaker
ah i Mark my words, if you don't find a way to become humble yourself, the world will find a way to make you humble. I like that. If we didn't have two more questions, I would wrap it there. That's fantastic. ah Last couple questions for you, Heath. The first one is, I'm a big reader, and I like to ask all of our guests if they have a book recommendation for me and for our audience.
Recommended Reading: 'The Enchiridion' by Epictetus
00:53:41
Speaker
Wow, a book recommendation. All right. Well, you can throw out a few if you'd like. That is difficult. I mean, there's probably reading lists on various, all right. If I could take one book to a desert island, what would it be? I would say some of the best books are the old books. And one book I'd recommend, and I'm not sure how many people have read it because it's somewhat obscure, is called The Incoridian by Epitetus. And you're probably like, what the hell is that? Well,
00:54:11
Speaker
Epictetus was a great stoic philosopher, and many people have heard of the meditations of Marcus Aurelius. Have you heard of that one? Yes. and So that's on reading lists, that's people, and that is a great book. But Marcus Aurelius actually learned from Epictetus. So he read Epictetus first, and the Incaridion is a small book, and I think it's probably the best synthesis of Stoic philosophy. And and it is a um it's called The Incoridian, which translates into handbook or ready at hand. So it's like, you could take one book and have it ready at hand to navigate life, it would be this. And so the version that I would recommend, there's a new one out by Princeton University Press, and it's called How to Be Free.
00:54:54
Speaker
And it is a translation of Epictetus in Caridian, so I would recommend that book. That's great. Probably relatively thin, but enough to occupy you in your mind for an entire flight across the United States. What I would say is this. You can read it in under two hours, but it will take you a lifetime to implement it. Yeah.
00:55:18
Speaker
Last question for you, Heath, that's something I like to ask all of our guests.
Advice for Young Lawyers
00:55:24
Speaker
And that's if you could look back on your days as a young lawyer, just getting started, something that you know now that you wish that you'd known back then. So I could fill this with like five hours of tech. For real advice, but but since this is the last question, and and I answered the last one philosophical, with a philosophical book, I feel like I've gotta be philosophical here too. Because if I'm gonna impart just one thing, what would it be? It's very simple, but it's not, again, it's something that's very difficult to actually imply in life. I found, particularly when I was a young person, but even now, we spend most of our time either dwelling on the past or dreaming of the future.
00:56:07
Speaker
We spend very little of our time in the actual present. Right now, we are present. Now I'm thinking like, what am I going to say now? He's throwing me some zingers or whatever. But for the most part, I feel like we're in the present. We're talking to each other. I feel like the present and understanding the power of it is something that it took me a long time to get. And there are two things. In some ways, it's a paradox. The first is,
00:56:31
Speaker
The present is the only time you actually have the power to do something. When you're dreaming about the future, you don't. And when you're drawing on the fast, you don't. So what you are tomorrow is what you do today. And if you don't do anything today, it's going to quickly become yesterday, right? So just realize, if you can, the power of the present. And then the second aspect to it, and this is why it's paradoxical, there's the action element, but it's also about enjoyment.
00:56:58
Speaker
that life at the end of it is a series of present moments. And you've got to learn to enjoy them. and And sometimes that's difficult to do because again, your mind's always racing. And it wasn't until I had kids that I found that the best part of my day in many ways was after dinner, I would go out on the swing set and just spend 20 minutes with the kids.
00:57:19
Speaker
and and i And I got to thinking like, wow, like I just need to savor these moments. And that the some of the greatest moments in life were not those moments of high achievement and that kind of stuff, but just these little present moments. So if I could go back and do it all over again, I would keep that in the back of my mind, the fact that, look, don't get stop dreaming. you You dream a little bit, but like get your hat out of the clouds.
00:57:43
Speaker
Don't be dweller on the path. You can't change that. Take action in the present, but every now and again, smell the roses. That's great advice, and I've really enjoyed my time being present here with you today. Thank you so much for joining this episode of The Abstract, Heath. Really my pleasure, and thank you so much to to you, Tyler, and to all the listeners. And to all of our listeners, thanks again for tuning into this episode, and we hope to see you next time.