Can the SEC take on the richest man on the planet?

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Elon Musk has insulted and dismissed the Securities and Exchange Commission, expressing utter contempt for Wall Street’s top policeman. At a recent conference, Musk referred to the SEC as “bastards.” In 2020, he made a rude insinuation on Twitter. In a 2018 interview, he said, “I do not respect the SEC.” Musk also submitted needed papers 11 days late after amassing a large interest in Twitter this year.

“Elon Musk is essentially shouting, ‘Come at me.’ ‘I dare you,’ says the narrator “Christine Chung, an Albany Law School professor, agrees. She used to work for the Securities and Exchange Commission’s Division of Enforcement as a lawyer. Even though the SEC has taken various steps against Musk, including fining him millions of dollars and accused him of securities fraud, Musk continues to prod the agency. The SEC has requested Musk to explain why he didn’t submit a necessary report on time and to expound on public statements he made regarding Twitter.

All of this is reigniting discussion about whether the SEC has the ability to rein in strong and affluent individuals such as Musk. Musk’s recent actions have aroused a lot of questions. Musk seems to have broken the rules with his late submission, according to former SEC Commissioner Joseph Grundfest. When someone owns more than 5% of a publicly traded firm, they have 10 days to notify the SEC, but Musk took his time.

“As a practical issue,” adds Grundfest, who is now a professor at Stanford Law School, “it seems to me that this is about as near to a slam-dunk case as you’re going to find.” “The SEC’s most junior lawyer should be able to draught a very strong complaint.” Grundfest, on the other hand, is sceptical that prosecuting Musk with a disclosure breach would accomplish anything. A fine of about $100,000 is normally imposed for this infraction.

“That’s pocket lint to a person like Elon Musk,” adds Grundfest. “That’s a pittance. It’s a sham. You get it from your small cash.” According to the Bloomberg Billionaires Index, Musk is the world’s richest individual, with a net worth of $227 billion. “It won’t make much of a difference,” Grundfest continues. “It’s not going to alter people’s minds. He’ll laugh.” In a 60 Minutes interview with journalist Lesley Stahl in 2018, Musk mocked the SEC when questioned about his choice to settle with the agency over a tweet.

In the interview, Musk said, “I want to be clear.” “I have no regard for the Securities and Exchange Commission. They have no respect from me.”

The Securities and Exchange Commission (SEC) had sued him for posting “misleading tweets” that “caused considerable market disturbance.” Musk is perhaps most known for tweeting that he was “considering taking Tesla private at $420.” He stated he had the necessary “money secured.” He didn’t, according to the SEC.

According to an SEC press release, Musk and Tesla agreed to pay $20 million each, and Tesla agreed to “put in place additional controls and processes to manage Musk’s communications,” including his tweets. That kind of suffocation, on the other hand, hasn’t really worked. Musk has continued to openly criticise the SEC, and he recently sought a judge to overturn his deal. A federal court turned down the request in April.

Former SEC employees question whether the agency is able to govern a world where businesses are worth trillions of dollars, the world’s wealthiest individuals are worth hundreds of billions of dollars, and stock market movements are driven by tweets. After many Americans lost money in the 1929 stock market crisis, Congress established the Securities and Exchange Commission over a century ago. According to the SEC’s website, its principal objective is “to safeguard investors.”

It was planned to be a formidable agency that served as a regulator as well as a law enforcement body. However, in the face of market manipulation and other wrongdoing, it has few choices. It can’t, for example, file criminal accusations. Is the SEC “carrying out its mandate in a fair and impartial manner, regardless of how rich and powerful you are,” according to Chung?

Many Americans, for example, were perplexed when no senior executives were jailed in the aftermath of the 2008-2009 financial crisis. Even if financial organisations were obliged to pay civil fines, the penalties were little compared to the billions of dollars in assets held by the banks. “People may be less inclined to accept what the market is saying us about the worth of firms like Twitter if they believe markets are rigged, or that markets are inherently unjust, and that your money and influence can determine what happens to you,” Chung says.

When it comes to resources, the SEC and the CEOs and companies it oversees have a significant disparity. To put this in context, Musk’s net worth is more than 100 times the yearly budget of the Securities and Exchange Commission. “When everyone else is out there in their sports cars, the SEC is driving their Model T,” Chung adds.

The Poop Emoji

Even if the SEC doesn’t prosecute Musk, lawyer Marc Fagel, who used to manage the SEC’s San Francisco Regional Office, believes the Tesla CEO is pushing limits and testing standards in a manner that hasn’t been seen before. He mentions a recent Twitter exchange between Musk and Twitter CEO Parag Agrawal. Musk closed a lengthy conversation about how the social media platform counts its subscribers by adding a faeces emoji.

“The securities rules include blunt instruments that are meant to punish fraud,” adds Fagel. The securities rules aren’t meant to safeguard investors when someone sends a poop emoji and they decide to purchase or sell shares based on that.

Although the message did not cause a significant change in Twitter’s stock price, some of Musk’s other tweets did, including one in which he said that his acquisition of the business was “temporarily on pause.” According to Fagel, Musk seems to have found out something. In this new environment, you may manipulate markets using the social media site Musk is attempting to acquire, and it “doesn’t really get to the level of fraud.” Sure, this may harm investors, but the SEC can’t do anything about it under present legislation.

Source: NPR

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