Image Source: SEC_News via Twitter
The SEC may have set a dangerous precedent in settling with Musk and allowing him to remain CEO. Musk and Tesla will also pay a monetary fine and add more independence to the boardroom as a result of the entrepreneur’s alleged market-manipulating behavior conducted through Twitter. We don’t think Tesla, a company with just $50 billion market capitalization and makes no money, is too big to fail. Musk’s settlement with the SEC is a sweetheart deal, and one that now has the stock soaring.
By Brian Nelson, CFA
In what has been a wild turn of events, first starting with a series of go-private tweets from Tesla (TSLA) CEO Elon Musk and a determination to fight charges from the SEC, has ended instead in a sweetheart deal. On September 29, the SEC announced that it had settled charges with Elon Musk and Tesla after the regulatory agency frightened most observers on CNBC in a press conference about the seriousness of the behavior.
It seemed all but certain that the SEC would seek to at least fire the entrepreneur, as we find it hard to believe that anybody would be able to continue their job given the charges filed. Some lose their jobs and livelihoods for far less. Though we like the generosity of the SEC, we’re not sure if it is sending the right message to corporate insiders. They hold incredible responsibility, and whether they are cooking the books, or issuing what could be considered ill-advised tweets, it may be one and the same.
Pharma Bro ‘Martin Shkreli’ was sentenced to 7 years for securities fraud earlier this year, and most Main Street investors have never heard of him. Former CEO Jeffrey Skilling of Enron got 14 years, a lengthy sentence, and Elizabeth Holmes, former CEO of now-defunct Theranos was charged with defrauding investors seemingly only at the time momentum regarding the apparent imbalanced treatment by the SEC between Shkreli and her surfaced on none other than Twitter.
Again, we like that the SEC isn’t really punishing Musk and Tesla shareholders, but we also note that a market is a market, and part of the SEC’s role is not necessarily to ensure that any one company survives or thrives, at least from how we understand things. It almost seems as though the SEC, in its settlement with Musk, has become more of a corporate governance advisor, taking the company’s stewardship into its own hands.
Seemingly, all Musk has to do is step down as Chairman of Tesla, appoint a couple independent directors, and pay a really small fraction of his net worth as a fine. Also included in the settlement is that Tesla “will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications.” Some are saying that this opens the door for civil litigation, particularly from the shorts, but again, we’re surprised Musk will keep his job. People lose their jobs everyday for reckless behavior that doesn’t come anywhere close to allegedly breaking securities laws.
Regardless, what an amazing turn of events for both Tesla longs and shorts. We hope the settlement doesn’t set a bad precedent, but we’re also glad that Musk and Tesla avoid personal and corporate collapse, which seemed like a real possibility following the SEC press conference September 27.
Auto Manufacturers: F, GM, HMC, HOG, TM, TSLA
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.