The Rise of Retail Investing

Jina Choi sees the pendulum swinging in Silicon Valley

The SEC's top enforcer in San Francisco during the Theranos saga has a warning for entrepreneurs.

​Jina Choi, now a lawyer at Morrison & Foerster, oversaw enforcement for the SEC in San Francisco from 2013 to 2018.

Jina Choi, now a lawyer at Morrison & Foerster, oversaw enforcement for the SEC in San Francisco from 2013 to 2018.

Photo: Morrison & Foerster

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Jina Choi was the SEC's top enforcer in Silicon Valley from 2013 to 2018. Under her, the agency took action against Tesla and Elon Musk, Elizabeth Holmes and Yahoo on issues ranging from deceptive tweets to investor fraud to data breach disclosures. Now a lawyer at Morrison & Foerster in San Francisco, she worries that the kind of abuses she checked could happen again. Her message to founders, which should perhaps resonate with the Vlad Tenevs of this world: If there's a line you shouldn't cross, don't dance too close.

Read on for Choi's insight. Her remarks have been edited for brevity and clarity.

Things move really fast out here. I started my career on the East Coast. In New York, the big law firms are really tied to financial services companies. So what was fascinating during my tenure at the SEC — and it's still playing out this way — is to see the cycle of what's acceptable and what's admired [in the tech industry]: "Do I want go right up to the line, or do I want to step a little over the line, or do I have a healthy respect for that line?" And how are you rewarded for that calculus.

I heard a speech that the U.S. Attorney for the Northern District gave saying, "This mentality goes back to the Gold Rush." There is a very unique Silicon Valley tech company culture. It was a really interesting time. And maybe a little at the tail end of that there was a little of a reckoning.

There is a pendulum that goes one way, then swings back. I think there was a period that Silicon Valley was the darling of society, of legislators, of policymakers. It was seen a little bit as the savior to some of the ills of society. There was definitely a point in 2008 during the Great Recession when it was just Occupy Wall Street and the big, bad Wall Street banks. Then there were the fresh-faced youngsters in Silicon Valley. They had their own mantras and mottos and ways of looking at things — when your mission statement is "do no evil" and "connect the world."

But then you could see Uber, Theranos or different cases where it was, I don't know, "Move fast and break things." Maybe that works for a 15- or 100-person startup, but these companies were starting to get bigger market share and have a huge impact on society.

There's very little leeway for that now. I don't think that "move fast" motto is out there for Big Tech anymore. Even that idea of "ask for forgiveness rather than permission." I think smart, talented people have to recognize what's going on in the culture now. I do think the pendulum has moved the other way. I counsel tech companies all the time: To the extent there is a line there, you want to give that a healthy margin.

Social media and how people communicate now is a really fascinating space. The SEC, as a regulator, has had to deal with different ways people communicate for years. Even just in my professional career, we went from paper documents to electronic to email. So many fraud cases were made because of that new way of communicating.

We brought a case in early 2000s in the San Francisco office over a fax blast where people sent false information in a fax to manipulate the market. People traded on that. That's a highly efficient way to move the market.

Then you have social media. With tweeting, people joke about it. But the president of the country was using that very effectively. Look at a case our San Francisco office brought early on: Netflix's CEO had put company metrics on his personal Facebook page. You have to put that in a filing. Then you had Elon Musk — that was the last big case under my tenure.

Now this happens on message boards or Reddit. Does it surprise me? It doesn't. What I look at is what's going on there, is it a federal securities law violation? Can federal securities law keep pace with new technology? The tension is a real one, and it's an important one, between the First Amendment and market manipulation.

I'm an enforcement lawyer. I've seen a lot of fraud. But look at what happened in GameStop. As long as they go in with their eyes wide open and have material information, they should be able to invest. We're not a nanny state. They should be able to invest in what they want to. On the other hand, there are folks being fleeced. You saw some of that in the Maxine Waters hearing. You see it in how the questions are framed. The idea of no-commission investing and gamification of buying stocks: Should there be regulation around that? That's the fundamental question.

I think we're going to have a very aggressive and expansive SEC coming up. I think they are professionals and they take their obligations seriously, but they have their own pressures. I was a history major — I think of timelines and I think of the agency's history and where we are right now on the timeline of that pendulum swinging.

I think people are more careful now. I still worry about [another Theranos] happening, as long as you have this talent, as long as you have capital markets and as long as you have the kind of culture that rewards the attitude of "seek forgiveness rather than permission" — if that's rewarded. A big part of this is FOMO. As long as you have that sort of mentality, all those things can happen again.

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