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Ask HN: Please help me understand why the SEC settled with Elon Musk and Tesla

2 points by tareqak 8y ago

I don't want to talk about Elon Musk or Tesla here (it's valid conversation topic, but there's been a lot said already). I strictly want to understand why a government body charged with enforcing rules on behalf of the US people declined to go all the way. From my scant understanding of the events and the laws, the SEC had an open and shut case to win. Why didn't the SEC try to get a guilty plea, or move forward with the necessary legal proceedings to do so? If the argument is that the court finding Elon Musk and Tesla to be guilty would effectively be a death knell for the company, then I have to ask why the punishment in crimes involving individuals seem so much harsher to me. To be fair, the SEC isn't the only government body that seems to settle against corporations or sufficiently powerful/wealthy/connected individuals, but the arguments in the SEC's favor seem overwhelmingly clear cut to me (i.e. a "slam dunk") and the topic is easy to follow (a small number of events within a short time frame, a small number of clear and concise legal precedents of the law in question).

btian 8y ago
> SEC had an open and shut case to win LOL! All trials are risky. Funding secured can mean many things. Jurors may be happy Tesla customers and won't convict. Even if jurors convict, judge may not remove Musk. Musk can appeal, higher level judges may say it's not a crime to lie on Twitter (see Trump's twitter account). If you think it's a "slam dunk", you must not be an experienced lawyer.
- tareqak 8y ago
  I'm not a lawyer at all. I just saw this event as a case of "doing X, when you are specifically not allowed to do X".
  - Latteland 8y ago
    It was stupid and dangerous to do that. I think a fine and slap on the wrist was okay. I wish the time out of cob was shorter. The secdies a terrible job of finding leaders of companies, this was just more egregious than usual. Look at all those banks that went under on wall street, no fines or prison terms after saying they were fine.
jppope 8y ago
Based on the question, I'm guessing that you're either 1) not a US citizen, or 2) there is an ulterior motive... but I'll take the bait anyway. Its interesting that you start off with not wanting to discuss Elon (or Telsa) because I would argue that the answer to your question is entirely and inseparably related to both. The case and its eventual settlement were emphatically because this is Elon Musk and not a different executive. Since you're posting to HN I would assume that you have been reading the supplemental articles related to other high profile SEC cases (Martha Stewart, Elizabeth Homes, etc... https://www.nytimes.com/2018/09/28/business/elon-musk-tesla-sec-ban.html https://www.nytimes.com/2018/09/28/business/elon-musk-tesla-...). I would argue that the SEC actually uses cases like this as public demonstrations to show that they do have the power to regulate, and to serve as a notice of caution to persons trying to manipulate the public markets. If you look at the SECs actual enforcement history though (look at the ramifications to the banks that caused the financial meltdown in '07- '08) they struggle to protect normal investors through regulation and enforcement. This settlement is explicitly about Elon, and Tesla. Regarding the rest of your post, if you read the filing (https://apps.washingtonpost.com/g/documents/business/us-securities-and-exchange-commission-vs-elon-musk/3219/ https://apps.washingtonpost.com/g/documents/business/us-secu...), the "open and shut" aspect might not be as clear as it appears to be in the media. I personally believe that the SEC would have prevailed, but they could have been slugging this out in court for a while... and if the Saudi Fund were to provide testimony to support Elon, it could create even more of a ruckus. Given their current 5% stake in Tesla, they would benefit by supporting him. So in a way the settlement probably just expedited what the net result would have been anyway. But to answer your real question... the implications for a harsh penalty versus a light penalty have an even amount of gravity, and the SEC took the middle road on this one. Elon/ Telsa have a ton of enemies but they also have a lot of support. Removing Elon from the helm would/ could cut off the lion at the knees... and cause a huge stir from a large number of investors (and political progressives). If you look at the history of the public markets (I would personally recommend the Story about Piggly Wiggly from "Business Adventures") there are loads of examples where decisions have been made that follow the intent of the law and not the word of the law. And so it goes with Elon and Tesla. $20M for one tweet hurts even the wealthiest people, and Elon's stated goal is to move the world forward towards sustainable transportation... no doubt he would rather have that $20M being used on something towards sustainable transportation and not going into the super-massive black hole of the US government. Who knows though? Maybe if the SEC had gone all the way it would have been better for US citizens and investors?

2 points by tareqak 8y ago

btian 8y ago

> SEC had an open and shut case to win LOL! All trials are risky. Funding secured can mean many things. Jurors may be happy Tesla customers and won't convict. Even if jurors convict, judge may not remove Musk. Musk can appeal, higher level judges may say it's not a crime to lie on Twitter (see Trump's twitter account). If you think it's a "slam dunk", you must not be an experienced lawyer.

tareqak 8y ago
I'm not a lawyer at all. I just saw this event as a case of "doing X, when you are specifically not allowed to do X".
- Latteland 8y ago
  It was stupid and dangerous to do that. I think a fine and slap on the wrist was okay. I wish the time out of cob was shorter. The secdies a terrible job of finding leaders of companies, this was just more egregious than usual. Look at all those banks that went under on wall street, no fines or prison terms after saying they were fine.

jppope 8y ago

Based on the question, I'm guessing that you're either 1) not a US citizen, or 2) there is an ulterior motive... but I'll take the bait anyway. Its interesting that you start off with not wanting to discuss Elon (or Telsa) because I would argue that the answer to your question is entirely and inseparably related to both. The case and its eventual settlement were emphatically because this is Elon Musk and not a different executive. Since you're posting to HN I would assume that you have been reading the supplemental articles related to other high profile SEC cases (Martha Stewart, Elizabeth Homes, etc... https://www.nytimes.com/2018/09/28/business/elon-musk-tesla-sec-ban.html https://www.nytimes.com/2018/09/28/business/elon-musk-tesla-...). I would argue that the SEC actually uses cases like this as public demonstrations to show that they do have the power to regulate, and to serve as a notice of caution to persons trying to manipulate the public markets. If you look at the SECs actual enforcement history though (look at the ramifications to the banks that caused the financial meltdown in '07- '08) they struggle to protect normal investors through regulation and enforcement. This settlement is explicitly about Elon, and Tesla. Regarding the rest of your post, if you read the filing (https://apps.washingtonpost.com/g/documents/business/us-securities-and-exchange-commission-vs-elon-musk/3219/ https://apps.washingtonpost.com/g/documents/business/us-secu...), the "open and shut" aspect might not be as clear as it appears to be in the media. I personally believe that the SEC would have prevailed, but they could have been slugging this out in court for a while... and if the Saudi Fund were to provide testimony to support Elon, it could create even more of a ruckus. Given their current 5% stake in Tesla, they would benefit by supporting him. So in a way the settlement probably just expedited what the net result would have been anyway. But to answer your real question... the implications for a harsh penalty versus a light penalty have an even amount of gravity, and the SEC took the middle road on this one. Elon/ Telsa have a ton of enemies but they also have a lot of support. Removing Elon from the helm would/ could cut off the lion at the knees... and cause a huge stir from a large number of investors (and political progressives). If you look at the history of the public markets (I would personally recommend the Story about Piggly Wiggly from "Business Adventures") there are loads of examples where decisions have been made that follow the intent of the law and not the word of the law. And so it goes with Elon and Tesla. $20M for one tweet hurts even the wealthiest people, and Elon's stated goal is to move the world forward towards sustainable transportation... no doubt he would rather have that $20M being used on something towards sustainable transportation and not going into the super-massive black hole of the US government. Who knows though? Maybe if the SEC had gone all the way it would have been better for US citizens and investors?