You may already know that I own a modest amount of Tesla stock, and am a certified Elon Musk fanboy. I also think Donald Trump is garbage. Even so, I am a lawyer, and capable of being somewhat objective in my analysis. So let’s inquire as to why Elon Musk just had to pay a $20 million penalty and step down as Chairperson of Tesla for doing the same thing Donald Trump does constantly.

The SEC Rule Facially Applies To Anyone Who Tweets About A Company

First, what exactly is the Securities and Exchange Commission doing in policing Elon Musk’s Twitter feed? The tweet in question was issued on August 7. It read: “Am considering taking Tesla private at $420. Funding secured.” There were also a handful of similarly themed follow-up tweets. Tesla shares climbed by 11 percent to $379.57, just $10 shy of their all-time high, as trading was halted for part of the afternoon.

On September 27, the SEC filed a complaint, available here, accusing Elon Musk of violating 17 C.F.R. § 240.10b-5, Employment of manipulative and deceptive devices, which is promulgated under the rulemaking authority of 15 U.S.C. § 78j. The full text of that regulation is as follows:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

The caveat “in connection with the purchase or sale of any security” might seem insulating — Elon himself was not buying any Tesla shares or selling any of his approximately 20 percent stake in connection with the tweet — but even if other people purchase or sell in connection to the statement, this criterion has arguably been checked.

For a private or public suit under Rule 10b-5, the “plaintiff must prove that the defendant acted with scienter, ‘a mental state embracing intent to deceive, manipulate, or defraud.’” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007) (citation omitted); see also Aaron v. Sec. & Exch. Comm’n, 446 U.S. 680, 702. This has been interpreted to include a “high degree of recklessness suggesting an indifference to deceit.” Auto. Indus. Pension Tr. Fund v. Textron Inc., 682 F.3d 34, 39 (1st Cir. 2012) (citation omitted).

The gist of why the SEC thought Elon Musk should be liable can be gleaned from their subheadings saying his tweets were “Materially False and Misleading” and that “Musk’s Tweets Caused Market Chaos and Harmed Tesla Investors.” Basically the SEC said “funding secured” had some basis in reality, but was a bit of an overstatement, and affected the stock price.

Elon Musk already settled his suit with the SEC in record time, with no admission of wrongdoing, because he doesn’t have time to deal with this horseshit. He will remain CEO, but he has to pay $20 million, Tesla also has to pay $20 million, and Musk has to step down as Chairperson at Tesla for no less than three years.

The regulation doesn’t talk about officials at publicly traded companies. It says “any person.” The sitting President of the United States regularly does what Elon was charged for. I think the better approach would be that neither Musk nor Trump should be sued over these tweets, but this is a broad, vague regulation. It’s hard to argue that if Elon’s tweet warranted SEC enforcement action, Trump’s tweets don’t. Trump often directly attacks the trading price of a company’s underlying security. Let’s look at just a few of the times that Trump has tweeted false and misleading things which did and could have affected sales and purchases of securities.

A Smattering Of False And Misleading Trump Tweets About Companies

“I predicted Apple’s stock fall based on their dumb refusal to give the option of a larger iPhone screen like Samsung. I sold my Apple stock.”

Trump issued this tweet on January 28, 2014, when Apple’s stock price closed at $72.36. As of the end of last week, Apple’s stock price is $225.74. Great prediction.

“What a STUPID deal for Verizon to buy AOL for $4.4 billion. AOL has been bad luck for everyone who touched it. Worth less than $1 billion!”

False and itself stupid. AOL is demonstrably worth $4.4 billion, what a willing buyer just paid a willing seller for it. Right around the time of the purchase, AOL reported its first quarter revenue at $625.1 million, a seven percent increase over the previous year’s Q1 revenue.

“Wow, Twitter, Google and Facebook are burying the FBI criminal investigation of Clinton. Very dishonest media!”

No they’re not, and they’re not media companies either.

“We are getting rid of all Glenfiddich garbage alcohol from Trump properties.”

Glenfiddich does not come from a publicly traded company, although I think it’s fair to point out that a teetotaling jackass doesn’t know whether Glenfiddich is garbage alcohol or not.

“Seems hard to believe that @Facebook could be worth that much–be careful if you invest. And Mark Zuckerberg–get a pre-nup.”

I sort of agree with this one. Healthy stock price aside, Facebook got Trump elected, which makes it pretty much worthless.

SEC rules should be applied with consistency or not at all. Maybe the SEC should even give the public some agency as investors. If you bought or sold Tesla stock based on one ill-conceived Musk tweet, just like if you bought or sold Apple stock based on one ill-conceived Trump tweet, you’re not an investor, you’re a speculator. You shouldn’t be making investing choices based on one day of any celebrity’s Twitter feed. The SEC should also consider what it’s doing. The filing of their complaint tanked Tesla’s daily stock price more than Musk’s tweet raised it; losing a bunch of value for them seems like a pretty shitty way to protect investors. At the end of the day, maybe the SEC just shouldn’t be bringing weak suits on a flimsy pretense of protecting people from their own bad investment decisions.

Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.