SEC files suit against Elon Musk and Tesla over privatization talk
Probably the last thing anyone wants to hear today — three days before the end of Q3 — is that the Securities & Exchange Commission has sued Elon Musk in federal court in Manhattan, accusing him of fraud with regard to a totally out of the blue tweet on August 7 that rocked Wall Street.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
Update: Elon Musk has commented on the news. Also, there’s a report in the WSJ that Musk and the SEC were close to a settlement, but Musk and his lawyers pulled out at the last minute. We have not confirmed whether that’s true. Here’s Musk’s statement on the news:
“This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
“In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” the court complaint states, according to a report by Bloomberg. “This statement was false and misleading. Over the next three hours, Musk made a series of additional materially false and misleading statements via Twitter,” the complaint continues, according to The Guardian.
Here’s more from the complaint:
“Musk’s false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla’s stock and resulting in harm to investors. By engaging in the conduct alleged in this complaint, Musk violated, and unless restrained and enjoined will violate again, Section 10(b) of the Securities Exchange Act of 1934 (‘Exchange Act’)… and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.”
Normally at the end of a quarter, the big news about Tesla and Elon Musk would be about how many cars the company produced and delivered in the past three months. Those questions are even more relevant today, as the company is pushing hard to get Model 3 sedans into the hands of thousands of new owners.
Elon Musk has made reference to the company being in “delivery hell” now, and even tweeted that the company is considering building its own car carriers to get cars out to customers sooner.
Apologies, we’re upgrading our logistics system, but running into an extreme shortage of car carrier trailers. Started building our own car carriers this weekend to alleviate load.
— Elon Musk (@elonmusk) September 24, 2018
What Happens Now?
So, what could happen to Elon in court? Technically, two things. He could be fined and/or he can be barred from being an officer or director of a publicly traded company. Let’s look at both possibilities.
A fine could be anywhere from a few thousand dollars to several million. Generally, fines are assessed that are large enough to deter the accused from making the same mistake twice. How much money is enough to make Elon wince is highly speculative. Here at the CleanTechnica executive offices, the figure being bandied about is $50 million. But what do we know?
Almost every SEC complaint includes a request for a ban on acting as an officer or director, but that request is rarely granted says Bloomberg. But what if it is in this case? What could that mean to Tesla? We are entering the realm of pure speculation here, but let’s run with it and see where it leads. Feel free to disagree with anything that follows.
- Elon is forced to step aside. Tesla’s stock price tanks. Some other company — think Apple or Amazon — buys the company and continues to build high quality electric cars, just not quite with the same panache as Tesla’s current offerings.
- Elon is forced to step aside. Tesla’s stock price tanks. Another automaker — think Mercedes, BMW, or Toyota — buys the company and turns Tesla into a boutique sub-brand.
- Elon is forced to step aside. Tesla’s stock price tanks. General Motors buys the company and immediately shuts it down the way it did the Los Angeles public transportation system a century ago. Hasta la vista, baby.
Update: It appears that the SEC is not trying to remove Elon Musk from his role as CEO and says that’s up to Tesla’s board of director, of which Elon is Chairman.
Update #2: The SEC clearly states that it “seeks a permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.” The full court filing is here.
What About That Criminal Investigation?
The other thing to keep in mind here is that the Justice Department (a misnomer if there ever was one) is still investigating Tesla to determine if any criminal statutes were violated by Elon’s “I just might take the company private” misadventure.
The long knives are out for Elon and Tesla in certain quarters. With a government as corrupt as the one presided over by alleged president Trump, it’s not a stretch to imagine some Koch brother minions pushing hard in the background for a criminal prosecution. If that happens, the fate of the company very well could hang in the balance. Never overlook the possibility of high jingo playing a role in anything the Trumpies touch.
The Wheels Of Justice Grind
Enough speculation. The wheels of justice grind slowly. It could be months or even years before this matter gets resolved. Elon may survive production hell and delivery hell, but can he survive litigation hell? In the meantime, the action taken by the SEC will hang over Elon and Tesla like the sword of Damocles, detracting from all the good news coming from the company these days.
My old Irish grandfather would probably have a word of advice for Elon Musk at this moment: “Be careful what you wish for. You just might get it.” The one thing we can say for sure is that Elon won’t need to start a GoFundMe campaign to pay his legal fees.
(Originally appeared at our sister-site, Cleantechnica.)