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SEC Investigation of Elon Musk

Paper Type: Free Essay Subject: Finance
Wordcount: 1267 words Published: 23rd Sep 2019

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SEC Investigation of Elon Musk

On September 27th of 2018, the SEC charged Elon Musk, the CEO and chairmen of Tesla with securities fraud for multiple misleading tweets he had regarding his company Tesla and talks of him taking tesla private. Musk had been sending out tweets to his 22 million followers about taking tesla private when it reaches $420 per share implying that the funding was secured. The Specific tweet that sent Tesla into a whirlpool of trouble was when Elon tweeted out “Am considering taking tesla private at $420, funding secured.”. He sent out this tweet specifically because Tesla and musk have been under great scrutiny by investors and analyst because the company is burning through most of their cash and is struggling to meet production targets. By saying something like that it gives investors false hope that the company Is doing better than expected and surely enough the stock price jumped by over six percent on August 7th. After originally making this tweet This tweet specifically made the SEC start its investigation on Musk for “false and misleading” statements. Once the SEC got involved things were not looking too good for Tesla, the shares of the car company fell more than 13 percent in extended trading, and it was trading 30 percent below its 52-week high.

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Following the start of the investigation, their main goal becomes to make Musk step down from his CEO position to send a message and to have an impact and to set a precedent for other companies, so they do not take this lightly. Stephanie Avakian, co-director of the SEC’s division of enforcement had some things to say during a press conference. “A chairman and CEO of a public company has important responsibilities to shareholders…. 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.” One of the other complaints that the SEC had with the statement was the fact that he had not consulted with any of the other Tesla executives, even the head of investor relations later said that he did not know whether the funding commitment was written or verbal. The SEC ended up settling with Tesla CEO and chairmen Musk, one of the biggest consequences to come out of this settlement was Musk having to step down as chairman of the Tesla board and a fee of $20 million to pay by Musk and the company Tesla. Also moving on from no Tesla will have to “appoint two new independent directors to its board”, and “Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications;”. Now that Elon Musk has been forced to step down as chairmen of Tesla the board is going to be adopting new important reforms, including a closer look at all of Musk’s communications with future/current investors. With all the following changes I do not believe Elon Musk will fade into the background and we will forget about him, he is still the face of the company, but he has lost a lot of power by the false statements.

  A recurring theme that I have noticed to see with Musk is that he can be impulsive with his decisions, maybe double guessing himself which causes him to make erratic statements to prove his point. I do not believe that going private at $420 was the right move for musk to begin with because the company is losing money and still needs a lot of capital funding to be able to grow. Even if the company went private at $420 per share it would be a total of 72 billion dollars, then subtracting 14 billion that Musk has he would end up needing to finance 58 billion. Musk has also been projecting to be cash flow positive by the end of the year and I do not believe that would be enough cash to pay off the mass amounts of debt he has allocated. He also needs money for the new truck model that he has been talking about implementing, along with opening new factories in China. By the looks of it, seems like he should be raising money to be able to support these ventures he wants to take on so it would not make sense to go private. It appears that one of the only reasons that make sense to me as to why he would want to go private is that he has been spending a lot of time with his new project “Space X”. Space X has so far been a success for him, and they are making big strides towards the future, working with a company that is private is a lot more enjoyable because you have a lot more freedom to make changes because there are fewer people invested that you have to report to. Also, because you are private there is a little to no scrutiny and away from the public market. After working with a private Space X, it must have rubbed on to him and made him lean towards making Tesla private as well.

  Moving on from here one of the things to keep an eye on would be to see how removing him from chairmen of the company will have a positive or negative effect. Even though a big concern for a lot of shareholders was that because of his erratic behaviors it is for the better if he steps down and lets other people get involved. Even though this may be correct to some degree a reasonable inference is that Tesla is at where it is today because of Elon Musk. If it was not for his leadership and his role in the company, they would not be close to where they are, so this move by the SEC should play out very interestingly. If you look at the market cap of Tesla it is up there with the big automotive companies like GM, and a lot of that market cap is based on the simple fact that musk is such a strong personality. By taking him out the picture the company is basically a well-engineered car that is heavily in debt and burning through their cash. Originally when Musk stepped down the stock hit a bottom low of $250 per share. When people are investing into Tesla they are also investing in Elon Musk and all the things he brings to the table, all his hopes and dreams that he has for the company going forward, but after him stepping down from his position for the settlement it turns tesla into any other automotive business rather than a powerhouse company lead by someone with a strong personality and a brank envision like Elon Musk.

Works Cited

1)      Salinas, S. (2018, September 28). SEC charges Tesla CEO Elon Musk with fraud. Retrieved January 29, 2019, from https://www.cnbc.com/2018/09/27/tesla-falls-4percent-on-report-elon-musk-sued-by-sec.html

2)      Elon Musk Charged With Securities Fraud for Misleading Tweets. (2018, September 27). Retrieved January 29, 2019, from https://www.sec.gov/news/press-release/2018-219

3)      Elon Musk Settles SEC Fraud Charges; Tesla Charged With and Resolves Securities Law Charge. (2018, September 29). Retrieved January 29, 2019, from https://www.sec.gov/news/press-release/2018-226

4)      NathanBomey. (2018, September 18). Tesla faces Justice Department criminal investigation over Elon Musk’s tweets. Retrieved January 29, 2019, from https://www.usatoday.com/story/money/cars/2018/09/18/tesla-elon-musk-justice-department-sec-criminal-investigation/1345570002/


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