Capital markets and regulation

US President Donald Trump

Elon Musk 

USA’s insider trading, front running, tweets, failures to disclose and parallels in Sri Lanka

I am a firm believer in a “Market Economy” but as I often define it in print, electronic media and in public fora, a “Sustainable Market Economy” is one that is tempered by desirable, prompt and proactive, progressive and up to date, fair, just and equitable, legally enabled and enforceable “Robust Regulation.” It is against this background that I write about the emerging loss of credibility of a once respected jurisdiction.

Trump’s DOGE and Musk’s chainsaw

The Trump administration, has begun to inflict deep cuts in the financial budget and staff resources of “independent” federal regulatory agencies, including its Securities and Exchange Commission. All this under its Department of Government Efficiency (DOGE), which no less than Elon Musk heads. SEC – the capital market regulator reportedly offered $ 50,000 to many of its employees, encouraging them to resign or retire by 21 March! But what happened in January 2025?

Musk’s Tesla, and regulatory intervention

The US SEC announced in January 2025, that it had filed action against Elon Musk for failure to file a beneficial ownership report with the regulator, on a timely basis, pursuant to his acquisition of more than five percent of the outstanding shares of Twitter.

Beneficial ownership reporting in the US

The USA has beneficial ownership reporting requirements under their Securities Exchange Act of 1934. Surpassing a 5% threshold triggers a mandatory public disclosure, within the required 10-day window.

Delayed and false disclosures and fines in Sri Lanka

As I read the news item about Musk and Twitter, in January 2025, my mind went back six years, to a fine of over Rs. 60 million we at the SEC Sri Lanka imposed on the local and foreign directors of a listed entity in 2019, for delayed as well as erroneous and misleading disclosure of a series of downgrades by a credit rating agency. There was a lot of pressure brought upon me, even with calls from professional colleagues and ministers on behalf of the entity, but we consulted the Attorney General and proceeded to issue a well structured, qualitative and quantitative direction detailing, strictures and fines.

It was perhaps the largest fine in the SEC’s history. Yes, we were just and fair while being conscious of the responsibility we had towards the capital market and its other participants, listed entities, equity and loan providers to name a few. I was happy that despite the change of Government, the SEC ensured that the directive that we issued was complied with and the fine was paid.

Awareness enhancement and encouraging independence

I share anecdotes and real life situations of hands on experience in Sri Lanka, to build or enhance awareness about practical situations. That is the purpose of this writing. That is the raison detre of the Thought Leadership Forum, launched in 2005 and incorporated in 2008. In the context of the Capital Market, this writing is also, to encourage regulators, independent directors on the boards of listed entities or any other, to perform their roles, with self respect and dignity, independence and objectivity, honesty and integrity.

Musk, Tesla and his violation

As for Musk, he is said to have acquired a 9% stake in the company, when he purchased more than $ 500 million worth of Twitter common stock between 25 March 2022 and 1 April 2022, surpassing the 5% threshold that triggers a mandatory public disclosure under US law, within the required 10-day window. This had resulted in Twitter’s stock price surging by 27% after his stake became public. Trump’s “chain saw wielding” Musk, as I might refer to him now in 2025, apparently failed to timely file a beneficial ownership report. According to the SEC’s complaint, “Musk saved at least $150 million at the expense of Twitter shareholders.”

Purchases were at artificially low prices

The SEC alleged, that as a result of Musk’s failure to timely file a beneficial ownership report with the SEC, he was able to make these purchases of Twitter common stock “at artificially low prices” from the unsuspecting public, who had not yet priced in the undisclosed material information of Musk’s beneficial ownership of more than five percent of Twitter common stock.

Injunctive relief, disgorgement of ill-gotten gains, etc.

The SEC’s complaint, filed in the US District Court for the District of Columbia, charges Musk with violating Section 13(d) of the Exchange Act and Rule 13d-1 thereunder, which imposes a strict liability standard, seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

The response of Musk’s legal teams – Harassment!

Alex Spiro, Musk’s lawyer, has reportedly dismissed the SEC’s complaint as “an attempt to harass the CEO of Tesla and SpaceX”, calling the entire situation a “charade.” I wondered what the lawyers for those terminated Federal employees, and victims of DOGE would say about being robbed of livelihoods, also without reviews or proper notice, sans openness, “timely disclosure,” empathy, decency and practicality.

US SEC’s stand amidst Musk’s history of violations

SEC lawyers are said to be seeking over $ 200 million to settle the allegations related to delayed disclosure. I have shared my thoughts in articles under The Thought Leadership Forum, on Musk’s many violations over the years. This isn’t the first time Musk has clashed with the SEC. In 2018, Musk was found engaging in “securities fraud” after he tweeted that he had secured funding to take Tesla private, causing Tesla’s stock to soar. Musk and Tesla each had to pay $ 20 million in fines, and Musk had to temporarily relinquish his role as chairman of the Tesla board.

A parallel-attempted political interference in Sri Lanka

The above also reminded me of two occasions when a key political figure of the Yahapalanaya Government which had appointed me as Chairman SEC, “innocently” inquired whether I could withdraw a case we had filed against a party who was found to have engaged in insider trading. That party like Musk, had been previously warned for a similar violation.

Then on another occasion, a relative of a political leader, visited my office to inquire about withdrawing a case against another who had violated the provisions of the Act.

Regulatory “Ineffectiveness” by default or design

When I assumed the Chairmanship of the SEC in Sri Lanka, I was aghast that the Investigations Division was woefully understaffed. Within months I proceeded to multiply that number by more than three times, transferring several Chartered Accountants and Lawyers from other divisions into the Investigations Division, the floor area of which was also tripled with removal and the reinstallation of partitions.

Despite certain internal attempts to undermine what I was doing, I overcame all that. I later gathered that the Prime Minister, subject Minister and Government had come to learn of these necessary steps, being implemented, three years into that Government’s term of office. Thus they were supportive and did not interfere, though certain parties had complained to a Minister, about having to work long hours and produce “substance” within time lines. Yes of course, rather than the previous “business as usual.”

The public sector has good people

They need to be respected, motivated, guided, protected.

I was happy that 75% of the people found the new work ethic “rewarding and refreshing bringing self respect and dignity to their work” as many began to confide in me, responding very well to the learning and development and the institutional respect that began to make them secure. I remain deeply appreciative of their co-operation and desire to live up to their responsibility towards the “public interest.” A regulator is only as effective as its people and the tone at the top, the energy, the drive and the independence of a Commission or its Governing Board, and their own expectations of themselves.

Not rocking a boat but taming a tide

Thus, on both occasions I declined to withdraw the cases, conveying politely, that the action was filed after extensive research, analysis, interpretation of evidence and the deployment of due process, leading to the unanimous approval of my 10-member Commission, and that the decision to prosecute was based on the advice we sought from the office of Attorney General. A former Minister even called on behalf of a high profile religious leader – one who is expected to spread the Dhamma – the very philosophy I subscribe to, to inquire whether we could withdraw a case. I respectfully explained our institutional position. I did not sway, neither did my team.

Institutional independence, professional self-respect

I thought it necessary to share our approach from the perspective of my Commission, Directors, Deputies, Managers and staff, particularly the Director Legal and Director Enforcement and indeed the now hardworking restructured and repositioned Investigation Division, that we were infusing a new culture and that I would certainly not let my people of the SEC, the Government – my appointing authority, down, but rather will nurture, institutionalise and sustain that new culture such that it might survive regime change.

Bad precedent

Of course there had been an instance, when the Attorney General had requested withdrawal of a case and the Commissioners had yielded. Yes, the Commission withdrew a case against a party being prosecuted for insider trading. That was 10 years before. It was reported in the Sunday Times of 4 October, 2009. I was not prepared to be intimidated by that “precedent.”

Ranil Wickremesinghe and Late Mangala Samaraweera

I must of course say that neither the then Prime Minister Ranil Wickremesinghe nor the then Finance Minister Late Mangala Samaraweera, spoke to me about a case or any investigation, or even once attempted to indulge in political interference. At least not under my watch of 18 months. Let me now go back to that “Land of the Free and Home of the Brave.”

Delivery of summons on Musk and the theatrics

On 14 March, summons had been served on Musk at the headquarters of SpaceX in Brownsville, Texas. The server noted that “upon his arrival at the SpaceX facility, three different security guards refused to accept the documents, and one told him he was trespassing.” So he had apparently “placed the documents on the ground,” and left while the guards photographed him and his car!

Private investment to buy political influence?

Once Twitter was taken over, Musk leveraged the platform to promote then-candidate and now President Donald Trump, and other Republican candidates and causes. Musk, is reported to have spent or should I say “invested” over $ 290 million to campaign for Trump.

Doge efficiency or infusing enforcement ineffectiveness?

The Trump administration has reversed a 15-year-old policy that allowed the SEC’s director of enforcement to issue formal orders of investigation. The agency now requires requests for orders of investigation to be approved by a vote of SEC commissioners. This change will undoubtedly delay and stifle investigations, like that which apparently led to the delays in SEC’s actions against Musk.

Interim SEC chief – sole vote against suing Musk

According to Reuters, days before Republicans took office in January, US SEC’s five commissioners held a closed-door vote on whether to sue Elon Musk. Four of the five including Republican Hester Peirce, voted YES while the fifth – Republican Mark Uyeda, now the acting head of the SEC – voted NO.

Action proceeds despite attempts to scuttle

With the 4-1 vote in favour, the SEC filed a lawsuit against Musk on 14 January. Days before the vote, Uyeda is said to have “pressed enforcement staff involved in the Musk case to sign pledges that the case was not driven by politics, according to two of the sources.” The staff had refused to sign the pledge, given that it is not typical SEC practice, sources had conveyed to Reuters. This cannot be the practice in any country, certainly not in Sri Lanka, I might make bold to say.

Unjust enrichment and probing intent

Apparently certain sources had said “Uyeda and his fellow Republican Peirce took issue with what the SEC wanted Musk to pay” – giving up $ 150 million in alleged unjust enrichment plus a penalty. However, Peirce had eventually joined with the three Democrats in voting to sue.

In addition to the timing of his disclosure, SEC had examined whether they could prove any intent behind his late filing. This of course would have led to more serious charges, according to two of the sources and a third person with knowledge of the investigation. Musk has said he disclosed the stake promptly after realising he misunderstood the SEC disclosure rule and the SEC ultimately did not bring any charges alleging intent. That line of inquiry, and Musk’s delays added time to the investigation, the sources said.

The resistance, attempts to seek settlement and SEC’s delays

Musk had agreed to be deposed twice in 2022. Yet he had refused to be interviewed a third time. The SEC sought court intervention to compel his additional testimony. On 3 October 2024 he had appeared. But the matter could not be concluded before the election. In December, a month before filing the lawsuit, the SEC attempted to reach a settlement with Musk. Musk claims the agency had given him 48 hours to agree to pay a penalty to settle the probe or face civil charges. The two sides did not settle. Six legal experts interviewed by Reuters questioned why the SEC took so long to bring a late filing case.

US SEC’s credibility at stake?

Howard Fischer, a partner at law firm Moses & Singer who worked at the SEC under President Barack Obama and President Trump had opined that “They could have brought it closer to the timing of the conduct. But bringing it at the last minute – literally – it loses credibility. That’s problematic for any agency, especially when dealing with such an obviously politicized issue.” Yet others believe that not bringing a case at all would raise questions of selective enforcement of US laws.

Responding to summons and Trump’s executive order

According to court records, Musk has until 4 April to respond to a summons in this case. Meanwhile, Trump has issued an executive order accusing the SEC and other agencies of “politically motivated investigations under former President Joe Biden and directing a review of cases over the past four years.” 

Theatrics of Trumps, Musks and what we have to protect

So much for the theatrics of Trumps, Musks and the US of A.

Their examples are not those for us to take. We can take pride in what we yet are, in Sri Lanka. Let me close with my very best wishes to the SEC, CSE, Brokers, Listed Entities, Auditors, Advisors, Lawyers, Corporate Secretaries, Boards of Directors and all in our Capital Market eco system. Let’s begin to punch above our weight class. Let’s leverage the yet unrealised potential of the CSE.

(The writer was Chairman of the Securities and Exchange Commission of Sri Lanka, between June 2018 and November 2019, and served as a Commissioner twice, once between 2015-2018 and prior thereto, in an ex officio position in his capacity as the President of CA Sri Lanka, between 2000 and 2001.)