Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter
Not a slap on the wrist, but not a summary execution either.
Tesla CEO and Chairman Elon Musk settled the fraud charges that the SEC had brought against him over his blatant lies he tweeted in early August about taking Tesla private at $420 a share, “Funding secured,” only to recant a couple of weeks later. As part of the deal, which the SEC announced today and which is still subject to court approval, Musk has to – I almost wrote “quit tweeting while high” – do the following:
- Step down as Chairman of Tesla, to be replaced by an independent chairman. Musk will be ineligible to be chairman for three years;
- Pay $20 million penalty.
But he gets to stay on as CEO and as board member – and apparently, he gets to keep his Twitter account, but with some board oversight (see below).
Today, the SEC also sued Tesla, and this being a busy Saturday, settled with Tesla all in one fell swoop.
The SEC charged in the complaint, filed in Federal Court today, that Tesla failed “to implement disclosure controls or procedures” over Musk’s off-the-wall tweets about Tesla:
“Musk has used his Twitter account to distribute material information about Tesla, including company financial projections and key non-financial metrics.”
“Tesla, however, did not have disclosure controls or procedures in place to assess whether the information Musk disseminated via his Twitter account was required to be disclosed in reports Tesla files pursuant to the Exchange Act….”
“Nor did it have sufficient processes in place to ensure the information Musk published via his Twitter account was accurate or complete.”
“By engaging in the conduct, Tesla violated, and unless restrained and enjoined will violate again, Rule 13a-15 [17 C.F.R. § 240.13a-15] of the Exchange Act [15 U.S.C. § 78a, et seq.].
Both Musk and Tesla are settling the charges against them “without admitting or denying the SEC’s allegations.” In addition to what Musk has to do and pay, Tesla has to:
- Replace Musk with an “independent Chairman;”
- Appoint a total of “two new independent directors to its board;”
- “Establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications.”
The $40 million in penalties that Musk and Tesla have to pay combined will be “distributed to harmed investors under a court-approved process.” Would those be the short sellers? Probably not.
The SEC announcement added:
As a result of the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board will adopt important reforms —including an obligation to oversee Musk’s communications with investors—and both will pay financial penalties. The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.
This settlement with Tesla is more than a slap on the wrist – particularly having to bring in two independent directors that will start nosing around some things – but it’s not exactly a summary execution. The company will now get a modicum of corporate oversight, and it might even try to tamp down on the blatant lies that Musk spews forth via his tweets in order to manipulate up the share price.
In terms of the penalty for Tesla, well, its $20 million penalty is a fly speck. It represents just two business days of net losses for Tesla, based on its Q2 net loss, its largest net loss ever. So this part won’t add much to the cash-burn machine.