Musk Argues SEC's Disclosure Case Against Him is Unconstitutional and Selective Enforcement

SEC Disclosure Claim Represents Targeted Application of Unclear Rule

Elon Musk answered the SEC’s disclosure violation claim against him on Tuesday with a filing that claims the agency has zeroed in on his acquisition of Twitter for a case it wouldn’t normally pursue involving a rule he says is unconstitutional.

In the filing, Musk presented 14 defenses in total. They mirror arguments U.S. District Judge Sparkle L. Sooknanan for the District of the District of Columbia ruled earlier in February didn’t warrant dismissal of the case. […]

Musk alleges the Exchange Act requirements he’s accused of violating, Section 13(d) and Rule 13d-1, violate the First Amendment because they compel content-based disclosures that can’t satisfy the strict scrutiny standard they’re subject to. He also states the rule is vague because at the time of his alleged disclosure violation, it was unclear whether business days or calendar days were to be used when calculating when a disclosure was due. Rule 13d-1 was amended in 2023 to require disclosures within five business days.

Number Go Down and other Schadenfreude

Commissioner Peirce: …Now let’s address the elephant in the room: what do you think about the falling crypto prices of late? Is it time to focus our attention on this issue? Should regulators panic or even care that prices are down?

Chairman Atkins: It is not the regulator’s job to worry about the daily swings of the markets; it’s our job to make sure market participants have the disclosures they need to make informed investment decisions. People whose only focus is on the number always going up are likely to be disappointed, whether they are buying stocks, precious metals, or crypto. Markets go up and markets go down in response to many factors. As regulators, the best thing we can do is to ensure that the rules governing the asset classes we regulate enable people to have the information they need to express their market sentiments through decisions about whether to buy the assets at issue.

Commissioner Peirce: I agree. “Number go down” is the mantra of the moment, and some crypto critics are dancing in the streets. In German, we would call this reaction “Schadenfreude,” which translates as something like “happiness about destruction.” In this context maybe we should call their attitude Ethbelowthreeglee or Bitcoinunderseventylevity….

Why insider trading isn’t always bad

Long a curiosity beloved mainly by economists, prediction markets—peer-to-peer platforms where people bet on elections, sports, the weather and more—have entered the financial mainstream. On Kalshi, the biggest American site, total trading volume last year rose 12-fold, to $24bn.

Such growth means theoretical concerns about these markets are becoming real. Chief among them is informed trading, in which some participants know something about an event that the public does not. After several examples in which the prices of correct outcomes surged above 90% just before official news broke—implying that some traders already knew the result—one case has turned criminal. On February 12th Israel said it had arrested two men accused of using classified information to make about $150,000 betting on the timing of its attack on Iran.

Such cases look like notorious insider-trading scandals, such as those of Ivan Boesky and Raj Rajaratnam. But that is a flawed comparison. In prediction markets, informed trading is not a crime or an injustice—it is a valuable service.
There are big differences between stocks and futures. Equity markets exist for the public to provide savings to companies. If insiders can trade on material non-public information (mnpi), ordinary investors lacking such knowledge will stay out of the market, depriving firms of capital. Because society benefits from this financing, most countries ban such activity.

Chair Selig’s First Big Move: Prediction Markets and CFTC Power

In this video, Braeden Anderson shares his perspective on what Chairman Selig’s leadership transition could mean for the market and why the next few moves will be critical in shaping the path forward.