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As Elon Musk prepares to take over Twitter, the SEC closely monitors

A MARTINEZ, HOST:

Elon Musk has publicly scorned the federal agency that polices financial markets. Now the Securities and Exchange Commission is scrutinizing his proposed takeover of Twitter. NPR's David Gura Reports.

DAVID GURA, BYLINE: When Elon Musk started buying up Twitter stock, by law, he was supposed to file a disclosure with the SEC, announcing he owned more than 5% of the company's shares. Musk did submit that paperwork but 11 days late.

JOE GRUNDFEST: As a practical matter, it seems to me that this is about as closest to a slam-dunk case as you're going to find.

GURA: Joe Grundfest, who used to be an SEC commissioner, says the agency's got grounds to charge Musk with a disclosure violation. But he's not convinced that would do that much. A disclosure violation usually carries a fine of about a hundred thousand dollars.

GRUNDFEST: To a guy like Elon Musk, that's pocket lint. That's chump change. It's bupkis.

GURA: The CEO of Tesla is the world's richest man, and his net worth is about $200 billion. Mark Cuban is another billionaire who's tangled with the SEC. And Cuban told Yahoo! Finance he doesn't think the agency's penalties are that effective.

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MARK CUBAN: There's no disincentive based off of the findings from the SEC or the rulings that they have or the court rulings they have. It goes into the ether, and nobody remembers it unless you're in the securities industry.

GURA: Former SEC officials wonder if the agency is equipped to police a world that's changed a lot since Congress created the Securities and Exchange Commission almost a century ago to protect investors after many Americans lost money during the 1929 stock market crash.

Christine Chung used to work as a lawyer in the SEC's enforcement division, and she compares the SEC to one of the first passenger cars.

CHRISTINE CHUNG: The SEC is sort of driving the Model T when everybody else is out there in their sports cars.

GURA: The SEC was meant to be a powerful organization. It's both a regulator and a law enforcement agency. But in the face of market manipulation and other malfeasance, its options are limited. It can't bring criminal charges, and Chung says it's a debate worth having whether its teeth are sharp enough.

CHUNG: Do we think that the SEC is carrying out its mission in a way that is fair and equitable, regardless of how wealthy and powerful you are?

GURA: If there's a perception that fines and other penalties don't matter much to the country's rich and powerful or they're not much more than a nuisance, well, that could have far-reaching consequences.

CHUNG: If people feel that markets are rigged or that markets are fundamentally unfair and that your wealth and power can dictate what happens to you, they may be less likely to trust what the market is telling us about the value of companies like Twitter.

GURA: The SEC sent a letter to Musk saying it's investigating that late filing, and it has some questions. But even if the agency doesn't bring charges, lawyer Marc Fagel says Musk is pushing boundaries and testing norms. Fagel used to run the SEC's San Francisco regional office, and he points to a recent back-and-forth on Twitter between Musk and Twitter's CEO. What started out as a substantive exchange ended with Musk posting a poop emoji.

MARC FAGEL: We have blunt tools in the securities laws that are designed to penalize fraud. But if somebody sends a poop emoji and investors decide that they're going to buy or sell stock on it, the securities laws aren't really designed to protect them at that point.

GURA: That tweet with the poop emoji didn't lead to a dramatic move in Twitter's stock price, but plenty of Musk's tweets have. And what he seems to have figured out, Fagel says, is that in this new world, with the social media platform he's trying to buy, you can mess with markets and it doesn't really rise to the level of fraud. Sure, that can hurt investors, but under law, there's not much the SEC can do.

David Gura, NPR News, New York. Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.