Yesterday at TechCrunch Disrupt, Jina Choi, the longtime head of the SEC’s San Francisco unit, declined to confirm that her agency is investigating Tesla CEO Elon Musk for his now infamous tweet about securing funding for a take-private maneuver.
Choi did pull back the curtain substantially with regard to how the agency — which has never worked harder as it relates to private company investigations — operates.
The uptick in activity is no surprise. As companies linger as private entities for longer periods of time — often raising hundreds of millions, if not billions, of dollars along the way — the SEC has found itself spending more time understanding who the players are, as well as watching them more closely. In fact, while Cho’s 130-person unit covers much more than the Bay Area — its reach extends to Portland, Seattle, Idaho, Montana, and Alaska — it could easily pour all of its resources into Silicon Valley and San Francisco because it’s so “incredibly busy.”
One of its most famous cases to date has centered on Theranos, the blood-testing company that is right now dissolving but was charged with massive civil fraud by the SEC back in March. It was a case that the SEC spent nearly two years building, and when we talked with Choi about what took so long, she explained how resource-intensive the process really is.
She also talked about how much of the agency’s tips come through media accounts (the WSJ famously blew the covers off what had gone so wrong at Theranos) versus other means, including the SEC’s whistleblower program.
And we talked about how the SEC determines settlements in those frequent cases where it settles with a party it has charged with fraud. Recently, for example, the SEC settled with Bay Area investor Mike Rothenberg, who it accused of misappropriating millions of dollars of investor capital. Rothenberg didn’t admit to wrongdoing, but has been banned from the investment advisory and brokerage business for five years — a move that some industry observers don’t think goes far enough, while others view as onerous.
As it happens, barring people from the industries in which they operate is about as extreme a punishment as the SEC can deliver, she explained. “We’re a civil law enforcement agency, so that means that we’re we don’t have the power to take away people’s liberties . . . We can’t put people in jail . . . but one of our most impactful remedies is to bar people from [their] profession” when such a penalty is deemed appropriate.
In fact, she continued, “a lot of times [the target of the SEC’s investigations will say] ‘I can pay a bigger penalty — I’ll pay you more money; just don’t ban me from this industry.’ And I think that that’s where we have a tough negotiation, because I think that’s where we can have our greatest impact.”
If you’re interested in how the SEC operates, as well as its evolving stance on ICOs and main street investors accessing private companies, you can learn a lot more by watching here.