SEC’s Move Against Elon Musk Was Unusually Quick

(Bloomberg) -- The U.S. Securities and Exchange Commission’s move on Thursday to sue Elon Musk less than two months after he first tweeted about taking Tesla Inc. private shocked analysts and investors. The electric carmaker’s shares tumbled more than 11 percent in after-hours trading. Investigations by Wall Street’s main regulator often take years. Here are some key takeaways on why the SEC’s speed with Musk is significant:

1) The case isn’t likely to go away quickly, said Brad Bennett, a partner at the Baker Botts law firm in Washington and former enforcement chief at the Financial Industry Regulatory Authority, Wall Street’s industry-funded regulator.

“These types of cases are very tough to settle, given the high-profile nature of the allegations,” Bennett said, adding that the SEC is pushing to bar Musk from serving as a top corporate official. “It’s hard to compromise when you are basically extinguishing your future.”

2) David Gourevitch, a former SEC enforcement lawyer who is now in private practice in New York, said he is surprised the agency brought the case. While Musk made a few isolated comments that moved the company’s stock price, there was no large pattern of this behavior.

In addition, Gourevitch said, the SEC traditionally takes into account the collateral consequences of its actions -- and removing Musk as CEO could be a real problem for Tesla, which is built on his vision and personality. “Can it survive without Elon Musk? No one knows,” Gourevitch said.

“What I think sunk Elon Musk was going on TV and smoking dope just a few weeks after he did this,” he added. “It was this in-your-face approach that caught up with him.”

3) “This is quick action by the SEC, which is more known for lengthy, laborious investigations,” said Gary Lincenberg, who heads the white-collar practice at Bird Marella in Los Angeles. “When the SEC does act quickly, it’s usually to restrain the operations of wholly fraudulent businesses, not to go after a CEO of a major American company.”

4) "It’s very hard to take action against a very prominent CEO who’s core to the value of the company,” said Ken Bertsch, executive director at the Council of Institutional Investors, a trade group representing public pension funds that own Tesla shares. “It’s a big deal for them to do this. It speaks to the integrity of the SEC and their processes.”

5) “It’s unusual for a case of this significance to move this quickly, in particular when you’ve got a high-profile individual,” said Robert Long, a former SEC enforcement attorney now in private practice at Bell Nunnally in Dallas. Still, because the investigation was narrowly focused on several tweets, he said the agency “could have conducted its investigation quickly.”

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