Musk's Spat With US SEC—Why The Tesla Chief Says That The US Market Regulator Is 'Weaponised'

Elon Musk and the U.S. Securities and Exchange Commission are at loggerheads. In the latest war of words, Tesla chief has questioned the US market regulator's fairness in dealing with him. However, the story begins years ago. NDTV Profit traces the roots of the feud.

Earlier this week, a federal appeals court rejected the SEC's approval of a list of Nasdaq rules that were designed to increase diversity on corporate boards in the US. The rules required US-listed firms to have women and minority directors on their boards or submit an explanation as to why they do not.

The December 11 ruling by the New Orleans-based Fifth Circuit Court of Appeals said that the rules that were okayed by the SEC were problematic and did not comply with the federal securities law. The court ruling stands as a major victory for the conservative groups that have been against the rules and challenged them.

"SEC has intruded into territory far outside its ordinary domain," U.S. Circuit Judge Andrew Oldham wrote for the majority.

The ruling drew further attacks by American entrepreneur Vivek Ramaswamy, billionaire Elon Musk and others on the SEC who said that the decision brings to light the key issues with the US market regulator.

Musk termed the SEC "just another weaponized institution doing political dirty work" in response to a tweet by Mike Lee, US Senator, who said, "The SEC is yet another "independent commission" that cannot be trusted."

“When an agency like the SEC is so repeatedly & thoroughly embarrassed in federal court for flouting the law, it loses its legitimacy as a law enforcement body,” stated Ramaswamy.

Tesla chief and X owner Musk has for long locked horns with the Wall Street regulator with the clash gaining more prominence in the recent years.

Recently, the US market regulator had requested a federal judge to sanction Musk for failing to appear before court for testimony over the Twitter takeover probe. However, the judge rejected the SEC's request citing his earlier testimony and reimbursement of the SEC's travel costs.

But, as mentioned, this spat has a long history.

In October 2018, Musk had taken a dig at the SEC, calling it the "Shortseller Enrichment Commission", saying that the "name change is so on point!".

"Just want to that the Shortseller Enrichment Commission is doing incredible work," he had said. In the same year, during an interview with "60 Minutes", he had said that he did not respect the SEC. "I want to be clear: I do not respect the SEC, I do not respect them."

The reply was in response to a question regarding the SEC's lawsuit against him. The regulator had filed a lawsuit against Musk that year, accusing him of making "false and misleading statements" regarding the possibility of taking Tesla private. Later, the SEC had reached a settlement with Musk on the lawsuit with the terms that the billionaire didn't admit or deny the allegations but had to pay a fine and get all future written communications approved by the shareholders.

The dispute between the regulator and the billionaire continued in the following year with the SEC saying in a court filing that Musk had violated the terms of his settlement by not taking approval from Tesla before posting a tweet about vehicle productions. SEC said that Musk should have been held for contempt of the federal court in the matter.

However, Musk's attorneys responded by saying that he had not violated the settlement, stating the regulator was overreaching. They insisted that Musk's projections on production were close to those made by the company.

The issue did not resolve with both the parties firing back at each other in a series of attacks.

A 2023 analysis by Fox News raised questions over SEC Chairman Gary Gensler's net worth, claiming that it skyrocketed as much as $100 million, or 650%, in a decade even as he primarily worked in public-service roles.

"Gensler — who was selected by President Biden to lead the SEC, the nation's top financial regulator, in 2021 — has seen his net worth grow from between $15.5 million and $61.8 million in 2009 to between $40 million and $116.2 million, as of his most recent disclosure earlier this year," said Fox News.

"Gensler's employment assets and retirement accounts are valued at between $3.1 million and $12 million while his other assets — including a Maryland property worth between $500,001 and $1 million and various stock market index funds — are worth between $36.9 million and $104 million. A large share of his other assets are invested in exchange-traded funds (ETF), which are externally managed and include shares in a wide range of diverse companies," it had added.

The analysis had come at a time when some lawmakers advocated for reforms in laws regulating federal officials' trading activities.

When Gary Gensler announced his resignation earlier this year, Musk was quick to react. "improperly motivated campaign"

According to a letter from Musk's lawyer, Alex Spiro, which he posted on X, the SEC had prepared “numerous counts” against the billionaire and "reopened an investigation into Neuralink.” However, the letter did not mention any specifics on the charges.

It said, "...the Commission Staff issued a settlement demand that required Mr. Musk agree within 48 hours to either accept a monetary payment or face charges on numerous accounts."

The letter mentioned that the demand followed "a multi-year investigation and more than six years of harassment of Mr Musk."

Musk's legal team has expressed concerns about the timing and fairness of the Commission’s demands.

Spiro's letter added that, "This series of events makes clear that the Commission is not motivated to seek the truth but instead is engaged in an improperly motivated campaign against Mr. Musk and the individuals and companies associated with him."

"We demand to know who directed these actions--whether it was you or the White House," the letter reads.

However, it is still unclear as to whether the charges referred to in Musk's letter were regarding the Twitter case.

X users reacting to the letter termed SEC's action as "illegal", "abuse of regulatory power" and "improperly motivated campaign".

"What the commission did is illegal. Wow. You can't force someone to pay a bribe in return for non-prosecution. This is extortion. I hope you pursue this," wrote X user Kirsten D'Klang.

"The Democrat New ERA includes using ALL Govt Agencies to abuse regulatory power to coerce & harass opponents into compliance with their TYRANNY !" said another user.

"Hey Gary, @GaryGensler, I think you know that with X, there is no hiding or persecuting people without answering to America. Your "improperly motivated campaign" is now getting a lot of optics. Suggest you come clean and stop this nonsense," tweeted FLDY.

Musk's lawyer has however said "these tactics and misguided scheme will not intimidate us". "We reserve all rights", perhaps indicating that the legal team will contest the demand by SEC.