JOHANNESBURG — Billionaire Elon Musk has made it a habit to hold up the middle finger to the Securities and Exchange Commission (SEC). Whether it’s brave or stupid, Musk has stirred a controversy that just isn’t going to go away. The question now is how the SEC will react to Musk’s latest barbs and what the endgame is in all of this. One also has to question whether this is a case of regulation lagging innovation, where social media and the instant publishing medium of the internet has completely upended traditional forms of communication, particularly in the financial and investment worlds. Either way, Musk’s rebellion against the SEC could make for a good MBA case study one day. – Gareth van Zyl
Opinion | Crazy Elon vs. the SEC, Round Two
By Holman W. Jenkins, Jr.
(The Wall Street Journal) – If Elon Musk didn’t have more compelling things that require his attention, we might say he has the Securities and Exchange Commission right where he wants it. He seems intent on blowing a big hole in the agency’s credibility when it comes to enforcing public company disclosure rules.
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His latest offense was almost diabolically innocuous. It was a PR tweet, exclaiming over Tesla’s growth since producing its first car in 2008. Nobody really cared that he implied that Tesla would build 500,000 cars in 2019. Four hours later, he corrected himself to say Tesla would end the year by producing cars at a 500,000 per annum rate.
But he also gloatingly acknowledged that he had issued the inaccurate tweet without clearing it with a company lawyer. A previous settlement with the SEC had required such legal monitoring.
You may recall: Last year he issued an egregiously inaccurate tweet saying that a big-bucks buyout was in the offing. The stock surged briefly but no buyout followed.
Now the agency finds itself in a miserable position. Over a tweet nobody thinks is important, and in the face of numerous taunts and insults from Mr. Musk, it can either administer another slap on the wrist or seek a penalty more typical of a recalcitrant CEO: It can bar him from running a public company.
Read also: Mean Musk: Tesla tyrant exposed for nasty firing rampages
But Mr. Musk is a bit of a pain compared to other CEOs, and he knows it. Fans and detractors alike credit him as the key underpinning of Tesla’s high-flying stock price. The SEC usually likes to show up after a bubble and hand out penalties. It hardly craves to be seen pushing a company’s shares off a cliff while millions of investors still have faith in its glorious future.
Of course, the agency could seek a middle way, but the last such settlement only brought mockery from Mr. Musk. On Twitter , he dubbed the SEC “the Shortseller Enrichment Commission.” On CBS’s “60 Minutes,” he announced in front of 11m viewers that the agency didn’t merit his or their respect.
The SEC could try to require Mr. Musk to close his Twitter account and cease online comment altogether. This might or might not be seen as a serious sanction, but it could also attract free-speech allies to Mr. Musk’s cause and embroil the agency in a fight that could end up curtailing its sweeping and little-challenged powers over what market participants are allowed to hear and say.
Tesla bears, of course, will insist that any non-draconian remedy is a case of the SEC bowing before Mr. Musk’s celebrity. They will be almost right. What the agency is really afraid of is taking responsibility for pulling the pins out from under Tesla’s stock.
Read also: Musk’s disrespect for SEC a risk for Tesla investors: Old Mutual
Does this dispute benefit Tesla? No. Does Mr. Musk’s undisciplined tweeting serve shareholder interests? No. Should preserving the SEC’s regulatory amour propre outweigh concerns about torpedoing what may or may not be a Tesla bubble? Er, not sure.
The question is a hard one from the perspective of protecting shareholder interests. We tend to sympathise with the agency’s instinct to stand aside and to let the bulls and bears hash things out. As one short seller sourly puts it, the SEC can always “ride in on red-faced horses and enforce the law.”
Some will say this puts the agency in the position of condoning fraud, and of creating additional victims out of any who buy the stock in the meantime.
To which we firmly respond: maybe. But investors are fully informed by now about the risks of owning Tesla and the controversies surrounding Mr. Musk’s leadership. The glory of our system is that, alongside Mr. Musk, his shareholders are free to see if they can revolutionise an industry based on a speculative idea.
A final matter can’t be escaped: Is Mr. Musk’s gratuitous baiting of the SEC a cry for help? Is he seeking to shift blame for a future Tesla meltdown to an unlovable government bureaucracy?
Happily, in another glory of our market system, investors are free to take such questions into account as they collectively go about assigning a value for Tesla shares. The company and Mr. Musk have until March 11 to file a response to the SEC’s attempt to find Mr. Musk in contempt of court for violating its previous settlement. In the meantime, Mr. Musk’s Twitter account will likely supply continuing grist for any who suspect his mental state is the most material factor of all for Tesla’s share price.
