You can hardly say that billionaires and generally wealthy people are above the law, but it would seem that way after Bloomberg made its case for the SEC having neither the staffing nor an up-to-date legal framework to deal with Tesla CEO Elon Musk’s sudden announcement earlier this month that he was ready to take the company private and had “funding secured.”
Bloomberg highlighted the numerous times when the SEC apparently failed in its duties, including not penalizing Apple co-founder and then-CEO Steve Jobs for awarding stock options that were backdated to make them worth a whole lot more.
While the understaffing issue remains a problem with the SEC, especially in San Francisco where the large tech companies call home, the bigger problem is outdated laws with which to fight new-age regulatory violations. Most securities laws date from the 1930s after the Great Depression, when the Securities Act came into being. That was the decade the SEC was set up, and not much has changed with securities law since then. There have been a few key amendments, but apparently, nothing that’s enough to handle a case like this.
Closer to the present, SEC chief Jay Clayton wants more IPOs and is trying to forge better relationships with tech companies.
It’s not that the SEC hasn’t taken action against tech giants, because senior executives from companies like Salesforce.com and Google (now Alphabet, Inc.) have been in their crosshairs in the not-too-recent past.
Now, however, the SEC hasn’t even publicly acknowledge that there’s a probe going on into Musk’s tweet or anything else regarding the take-private deal. Is the SEC trying to get a handle on how to deal with this without seeming like a fuddy-duddy chaperone on prom night?
Musk’s situation is a little more complicated because of one decisive word coupled with another loaded word: secured and funding. Later messages from Musk show that funding is far from being secured. There may be investors galore interested in this deal, but a CEO claiming on Twitter that he’s already secured the funding is akin to him saying that a deal has been signed. That’s the essence of the message any way you look at it.
Will the SEC forgo the transgression, or perhaps let Musk off with a fine and a slap on the wrist? Will Musk win if taken to court by the SEC? In the case against Mark Cuban and the Dallas Mavericks in 2013, the outspoken billionaire breezed out of court after winning a case where he was accused by the SEC of insider trading. The jury only took five hours to deliver their verdict.
Any number of things could happen as a result of the SEC probe. Technically, it’s not even a probe since the SEC itself hasn’t acknowledged that there is one in the first place. But even if punitive action were forthcoming, it may not be that significant an event in light of what Tesla and Musk are going through at the moment.