Tesla has settled with the US Securities and Exchange Commission (SEC), which last week accused Tesla founder and CEO Elon Musk of fraud, saying that Musk made a series of “false and misleading” tweets about potentially taking Tesla private at $420/share. On Saturday (29 September), Musk settled the SEC charges, agreeing to pay a civil penalty of $20mn and give up his role as chairman of the board for at least three years (although he will be allowed to remain on the board and will continue to serve as CEO, overseeing the firm’s development, engineering and design). The SEC also imposed a fine of $20mn on Tesla and the electric carmaker must also appoint two independent directors to its board.
In the lawsuit filed on Thursday (27 September), the SEC described Musk surprising members of his own management team and investors with a series of tweets, starting with the 7 August announcement that he was thinking of taking Tesla private. The Department of Justice (DoJ), which has the authority to press criminal charges, has also questioned the company about Musk’s tweets. The Wall Street Journal writes that the SEC filed the lawsuit after an initial proposed settlement with Musk fell through. In its lawsuit, the SEC said Musk calculated the $420/ share based on a 20% premium over that day’s Tesla closing price and “because of the number’s slang reference to marijuana.” The lawsuit cites emails and text messages between Musk and Tesla executives and quotes Musk as saying he thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price”.
Under the terms of Saturday’s agreement, Musk and Tesla neither admit or deny the wrongdoing alleged by regulators. News of the settlement saw Tesla’s share price recording impressive gains on Monday (1 October), with CNBC reporting that Tesla had its best day on Wall Street since May 2013. Since its fall on Friday (when the share closed at $264.77) to Wednesday’s (3 October’s) close the share price is up 11.3%.
Although the settlement with the SEC ends what could have been a potentially disastrous legal confrontation, Tesla still faces a DoJ investigation and several shareholder lawsuits.
Tesla, which has yet to turn an annual profit, has been struggling to mass produce its Model 3 sedan and since ramping up production inJuly, its already-slim cash hoard has dwindled, sparking concerns among investors over whether Musk will need to raise additional capital. However, Musk has repeatedly said Tesla won’t need to seek new cash and guaranteed to keep Model 3 production at a steady pace in an effort to help the company turn cash-flow positive and profitable this quarter. According to a recent SEC filing showing an email Musk sent to employees over the weekend, Musk writes “We are very close to achieving profitability and proving the naysayers wrong, …”