Opinion: Regulatory Overreach – Elon Musk and the SEC
March 31, 2022
As seen on The DI Wire
When you think of the core freedoms we have as Americans, what is the first thing that comes to mind? For many, it is the freedom of speech. After all, it is right there in our First Amendment:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Yet, as we have previously discussed, the U.S. Securities and Exchange Commission often acts in a fashion that is seemingly in contravention to this fundamental human right. Nowhere has this been more prevalent recently than in the ongoing drama between the SEC and Tesla CEO Elon Musk.
In 2018, the SEC accused Musk of fraud when he tweeted that he had “funding secured” to take Tesla private. As many companies do, Musk and Tesla settled the lawsuit by paying the SEC a $40 million fine and agreeing to have his tweets reviewed by Tesla’s lawyers. However, unlike so many other entrepreneurs and firms, Musk continued to speak out openly, defiantly, and sometimes crudely, against the SEC.
Recently, Musk officially asked the court to terminate the SEC’s policing of his tweets and his attorney, Alex Spiro, wrote that, “The SEC seems to be targeting Mr. Musk and Tesla for unrelenting investigation largely because Mr. Musk remains an outspoken critic of the government.” Does this sound like something the SEC would do?
Indeed, it does. Musk and Tesla agreed to settle the charges, while neither admitting nor denying them. This is what happens when one settles with the SEC, whether you are Elon Musk or a local business. Essentially, your freedom of speech and freedom to defend yourself is removed. SEC allegations become the “scarlet letter,” marking any organization and easily discoverable with a simple Google search.
For smaller companies, this mark can be especially damaging. When potential clients enquire, the business cannot explain its side of the situation. It can neither confirm nor deny the allegations. What’s more, you must sign a letter that states that you were not coerced. Of course, if you do not sign, the SEC will pursue the charges with the full weight and resources of the federal government at its disposal. If this is not coercion, then what is?
For an iconoclast like Musk, who has the pocketbook to fund an army of lawyers, this case may be a nuisance, but for the average entrepreneur, SEC charges can be a death sentence. As I’ve said before, this is simply un-American. Of course, there should be checks and balances in place to protect investors, but we cannot punish our entrepreneurs for continuing to push the boundaries of innovation.
And what checks and balances exist for the SEC? The group wields near limitless power in the public sphere, where even a simple allegation can ruin businesses and lives. This is not a group meant to protect investors. This is a protection racket that feels it can go after even the most successful of our country’s innovators.
And what of the $40 million fine that was meant to go to the shareholders allegedly affected by Musk’s tweet? According to The Wall Street Journal, Musk’s lawyers claimed that the SEC still has not distributed the fine to those shareholders and is “dragging its feet.” A mere 10 hours after Musk and his lawyers asked the SEC to terminate the policing of his tweets, the SEC filed the proposed plan to pay out the distributions, according to Reuters.
What do you think? Please post your comment here or email me at Publius.Connect@gmail.com. Together, I feel that we can continue to lead our industry forward and provide fair opportunities to all who seek them.
