Tesla: SEC Lawsuit

The big news last week on Tesla was that:

a.) The SEC thought it had a deal with Elon Musk regarding his 420/funding secure to take his company private tweet and the necessary penalties due to that tweet.

b.) The deal fell apart so the SEC brought a lawsuit (Thursday, 9/27).

c.) On Saturday (9/29), Elon Musk accepted a deal that was worse than what was reportedly the deal he initially rejected.



CNBC had the following to say regarding the lawsuit:

Among other remedies, the SEC is seeking to bar Musk from serving as an officer or director of a publicly traded company if found guilty. "A chairman and CEO of a public company has important responsibilities to shareholders," Stephanie Avakian, co-director of the SEC's division of enforcement, said during the press conference. "Those responsibilities include the need to be scrupulous and careful about the truth and accuracy of statements made to the investing public, whether those statements are made in traditional forms such as a press release or an earnings call or through less formal methods such as Twitter or other social media."

My interpretation of that quote/lawsuit is that Elon Musk would not be allowed to serve as CEO, Chairman or sit on the board of directors. Though it didn't appear to ban him from working for the company.

The article also described how Elon Musk came up with the $420 price point. He adjusted the price of the stock at the time by 20% and then rounding it up a $1.

Here's a quote that just has to be a lie, "Musk stated that he rounded the price up to $420 because he had recently learned about the number's significance in marijuana culture . . . " Yeah, right.

CNBC also provided what the defense would be before the eventually settlement on Saturday:

Musk thinks he had a verbal agreement in place with the Saudi sovereign wealth fund, and that verbal agreements are often common when doing business in the Middle East.

That defense obviously started to look weak as the hours passed.

Engadget reported that there was actually a less severe deal on the table that Elon Musk rejected:

Musk would have had to pay a "nominal" fine to the SEC, but he would not have been forced to admit any guilt in the matter. All of that probably sounded pretty good. The sticking point was likely that the deal would reportedly also have prohibited Musk from serving as Tesla's chairman for two years and required the company to appoint two independent directors.

So he rejected the deal that would have resulted in him having to resign as chairman for two years, but would allow him to still be CEO.

Wall Street took the news hard. The stock price for Tesla on Friday dropped $42.75 (or 13.9%), going from $307.52 to $264.77.

His Saudi defense was likely looking weak, but pressure from his investors (who just saw a 13.9% stock price decline) likely also put pressure on Elon Musk to settle with the SEC sooner rather than later.

Marketwatch reported on Saturday, Sept 29th:

The Securities and Exchange Commission reached a settlement of fraud charges on Saturday with Tesla Inc. and Elon Musk that forces Musk’s removal as chairman of the Tesla board and the payment of $40 million in penalties. Musk will pay $20 million of the penalty personally, without using insurance or other assistance, and will be ineligible to be re-elected chairman for three years. Tesla will pay the other $20 million and must name two new independent directors, one of which can be the new chair.

Note that he is not allowed to be chairman for three years versus the reported two years agreement that was rejected.