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SEC Joins The Babysitter’s Club

On Behalf of | Apr 24, 2019 | Blog, Regulatory Issues (SEC & FINRA)

We’ve been following the saga of Elon Musk’s run-ins with the Securities and Exchange Commission (SEC) since last year. A theory put forward by a respected lawyer and corporate governance expert now says that the SEC and Elon Musk may be a perfect match.

As we’ve covered here, here, and here, Tesla head Elon Musk has been in the scope of the SEC as a result of making embellishing statements on social media about the financial status of the company that influenced the stock price.

Earlier this week, a federal judge ruled that the SEC and Musk would be given an additional week to settle a dispute over a more recent tweet that the SEC believes breached the terms of a previous settlement. The SEC argued that Musk should be held in contempt but did not receive the ruling they were looking for.

Meanwhile, John C. Coffee Jr. – director of Columbia Law School’s Center on Corporate Governance – argues that despite currently being adversaries, the SEC may be the babysitter that Musk needs (Source: “How the SEC can be the babysitter Elon Musk needs“, CNN).

He points out that, while being scornful of the SEC, Musk can no longer afford to fight them if he wishes to remain an effective corporate leader for Tesla and SpaceX. He also points out that the SEC also has incentive to reach an agreement with Musk.

“Although Musk continues to trip over his oversized ego and sense of his own infallibility, the SEC is facing its own serious problem: Can it still enforce the consent decrees that it relies upon to make companies and executives comply with its settlements? To keep Musk from making any further major blunders on social media, the SEC must not back down in its efforts to keep him on a tight leash.”

The bottom line: the SEC and Musk are stuck with each other. The SEC needs to keep Musk in line and reach a deal that preserves their ability to hold people accountable for violations, and Musk needs a settlement to walk away with a clear set of rules for his conduct, providing his companies a way to move forward with him at the helm.

Ford O’Brien Landy LLP has helped people and companies manage their own relationships with the SEC and can help you protect your interests.