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Elon Musk Pulled Out of Settlement With SEC At Last Minute (cnbc.com)

Posted by BeauHD on from the still-developing dept.

Sources have shared some new details with CNBC relating to the recent SEC charges against Tesla CEO Elon Musk. Yesterday, U.S. securities regulators sued Musk for allegedly making false statements related to his abandoned efforts to take Tesla Motors private. Now, according to CNBC, Tesla and the SEC were close to a no-guilt settlement but Elon Musk pulled out at the last minute. From the report: Under the deal, Musk and Tesla would have had to pay a nominal fine, and the CEO would not have had to admit any guilt, the sources said. However, the settlement would have barred Musk as chairman for two years and would require Tesla to appoint two new independent directors, CNBC's David Faber, citing sources. Musk refused to sign the deal because he felt that by settling he would not be truthful to himself, and he wouldn't have been able to live with the idea that he agreed to accept a settlement and any blemish associated with that, the sources said. Musk called the SEC's allegations "unjustified" and that he acted in the best interests of investors. "Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful U.S. auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees," said Tesla's board of directors in a statement.

20 of 198 comments (clear)

  1. Gutsy move by Anonymous Coward · · Score: 3, Funny

    Rockets.
    Slick Cars. (in space)
    Big Drills.
    Flamethrowers.
    Playing Chicken with the SEC.

    Do I see a thrill junkie?

    1. Re:Gutsy move by saloomy · · Score: 4, Interesting

      He must have evidence that he discussed the price ($420) with someone who agreed to buy the exiting stock at that price. My guess is he shows a letter of intent, memorandum of understanding, or at least a confirmation email from them to the SEC (and the public), and he gets a slap on the wrist because the SEC will say "funding secured must mean it's in an escrow account", or something like that. If he's got nothing, he should have taken the deal.

      I do wonder if they are trying to bar him from taking SpaceX public (since he would be restricted in his seat at public companies).

    2. Re:Gutsy move by ShanghaiBill · · Score: 3, Insightful

      If he's got nothing, he should have taken the deal.

      If he's got nothing, the deal shouldn't have been offered. "A nominal fine and no admission of guilt" is not appropriate for inexcusable misconduct at this level.

    3. Re:Gutsy move by Hognoxious · · Score: 3, Informative

      Did you miss the bit about the 2 year ban?

      --
      Confucius say, "Find worm in apple - bad. Find half a worm - worse."
    4. Re: Gutsy move by michelcolman · · Score: 5, Insightful

      The "short sellers" have no impact on the operations of Tesla. Tesla does not depend on its stock price in any way that was created by the "short sellers".

      Actually, short sellers do make it harder to raise capital. Both through their actual selling (lower share price means having to issue more stock to raise the same amount of capital) and, more importantly, through incessant made-up rumors affecting both stock and bonds (with a higher interest rate for the latter).

      Not all the rumors are false, of course, and some of the criticism is certainly justified, but there's a whole lot of completely made up stories out there, too. "Ooh, a parking lot full of newly produced Teslas, they are obviously having trouble selling them" while in reality there's a waiting list of a few hundred thousand, for example. "Working conditions are unsafe, there are no yellow lines because Elon doesn't like the color yellow", quickly debunked with an actual picture of the factory floor with lots of yellow lines everywhere. Those are just some of the more obvious ones, but there's plenty more. That constant stream of negativity, with every debunked story being quickly succeeded by another one, does take its toll on the company's image which for a publicly traded company directly affects operations.

      I don't think Elon minds genuine criticism, or even people selling his stock short based on their honest judgement of his abitity to deliver. But people making millions by spreading false rumors, that's another matter entirely.

    5. Re: Gutsy move by Rei · · Score: 3, Interesting

      Speaking of short seller rumours... straight from the SEC filing:

      "In 2018, stock analysts and investors increasingly began to question whether Tesla could meet its previously announced production targets and begin to earn sufficient cash in order to sustain its operations and pay its existing debt load."

      The SEC presents short seller talking points as a statement of facts and credits them to "investors". The reality of the situation was that when Musk tweeted, Tesla's stock had just surged from a Q2 report that beat market expectations and increasing market optimism that Tesla actually was going to be profitable in Q3. But instead the SEC fills its filing with quotes that could very well have been straight from the mouth of Jim Chanos. Yeah, F*** you, SEC.

      I can just imagine the look on the jury's face when Musk's defense team points out the simple fact that Musk personally had enough assets to take Tesla private under the terms he described (most / 80% of Tesla's current investors staying onboard, of which Musk personally was 1/4 of them), as he owns ~60% of a little company called SpaceX worth $30B+ which controls 80% of the global commercial satellite launch market. And that PIF had just purchased 5% of the company on the open market (indeed, that broke immediately before Musk's tweets, and was the trigger for him making the plans public).

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      "Who the hell is Nietzche? It's a question stupid people are asking." -- Newscaster, "Jesus Christ Supercop"
  2. Re:So not banned from chairmanship by LynnwoodRooster · · Score: 5, Interesting

    Check out Albert Dunlap and John Schiller, both permanently banned from holding an executive position in publicly traded companies due to fraud and fiscal issues (like stock manipulation). They can, and have, gotten CEOs and senior executives banned from holding director positions - and Musk is running a big risk of that happening to him.

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    Browsing at +1 - no ACs, I ignore their posts. So refreshing!
  3. Re:Should have taken the deal... by DanDD · · Score: 5, Insightful

    I disagree. Board members can be beyond villainous, well into truly evil territory.

    Tesla will be better off in the long term without more hostile board members, even if it means being without Elon. The cult of personality is an intoxicating thing, but there are a lot of good people at Tesla and elsewhere who want it to succeed. Tesla can succeed without Elon if they must, but I wouldn't count him out just yet.

    For reference, see the history of the Aptera electric vehicle. It had great potential, but the appointed board members killed it.

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    "Every time I see an adult on a bicycle, I no longer despair for the future of the human race." - H. G. Wells
  4. Re:Should have taken the deal... by Anonymous Coward · · Score: 4, Funny

    electric vehicle. It had great potential

    You're saying they resisted implementing some good ideas? Maybe they weren't amped up enough for success. They are no longer part of current events though, so it hardly matters.

  5. just going around in circles by mschaffer · · Score: 3, Funny

    If Elon had actually secured the funding, he could make Tesla a private company.
    If Elon had actually secured the funding, he wouldn't be in trouble with the SEC.
    If Elon wasn't in trouble with the SEC, he wouldn't need to make Tesla a private company.

  6. Random Thoughts by Zobeid · · Score: 4, Interesting

    First, IANAL. With that said...

    This is a civil action, not a criminal one. Thus, even if he loses Musk does not become a felon and (I'm pretty sure) doesn't lose the security clearance that he needs for his SpaceX activities.

    The SEC can ban him from serving as CEO or chair of a publicly traded company; they can remove him from top spot at Tesla, but not from SpaceX which is privately held.

    Contrary to what many imagine, Tesla would not implode without Elon Musk. He probably thinks it would, because monumental ego, but he's wrong. Tesla is already set up to be a gold mine, a money-printing machine. It's not just the Model 3 that's on track to be profitable, but also the utility-scale battery storage systems. They haven't got a lot of press, haven't generated much drama, but since the facility in Australia proved wildly successful, demand for those is going to explode.

    If this investigation causes the stock to tank, I'll call it a great opportunity to buy in.

  7. More Random Thoughts by Zobeid · · Score: 4, Interesting

    Forgot to add...

    I believe the SEC will also need to prove that Musk *intended* to manipulate the stock price with his dumb tweet. (There's no law against just being dumb.) I don't think Musk actually was trying to manipulate the stock, and how they're going to make they're argument I'm not sure. This may not be the slam-dunk that some people expect.

    Furthermore, the SEC action may cause far more upheaval in Tesla's stock price and more harm to investors than the incident they are suing over. Is that really sensible? But you know, they want to make an example... They've said as much. This is about regulatory muscle-flexing and generating headlines.

  8. What happens if... by DanDD · · Score: 4, Funny

    What happens if this SEC civil lawsuit brings down the Tesla stock price to the point where Musk and others are able to more easily take the company private? Will the SEC investigate itself for stock manipulation? A truly entertaining possibility.

    --
    "Every time I see an adult on a bicycle, I no longer despair for the future of the human race." - H. G. Wells
  9. I think I know why by AlanObject · · Score: 3, Interesting

    I think it was back in December we stockholders got asked to approve a whopping great compensation package for Musk. To collect it I think he had to stay on as CEO for a certain amount of time and hit certain financial milestones. I think it was 10 years.

    So if he takes this SEC "deal" and has to step down as CEO would he lose all that? I think so.

    And I think it is bullshit. Imagine what would happen if Musk left. Nobody but the shorts (who are desperate for this to happen) would win because the stock would dive 40% minimum.

    And I don't see what Musk did wrong. He said he had a deal. He never said he was taking it which would have been a board (and possibly stockholder) action anyway. The SEC is being totally arbitrary. Let them take it to court if they want to be embarrassed.

    1. Re:I think I know why by mlyle · · Score: 3, Informative

      SEC deal was to step down as chairman, not CEO. It wouldn't have affected his comp.

  10. Trump fingerprints by goombah99 · · Score: 3, Interesting

    Trump wants charismatic industry leaders to kowtow.

    Read Mussolini's own writing. Trump did (really, he kept it in his bedside stand).

    At one point in time il Duce was revered by the world for the fascist economic miracle.

    Mussolini called it "corporatism". The governing paradigm is the state selects an elite set of corporate power brokers who receive favor, such as continuing to breath air, in return for supporting a benevolent patriacial dictatorship that masquerades as a democracy with a permenantly re-elected supreme leader.

    it actually worked well up until Mussolini decided to invade Ethiopia and hitler copped his game plan. Then it went to shit for him.

    Musk is the demo to all the other corporate charismatic leaders that you will pay if you don't kow tow to il Cheeto

    --
    Some drink at the fountain of knowledge. Others just gargle.
    1. Re:Trump fingerprints by Shinobi · · Score: 3, Informative

      Then you're wrong. Corporatism, with the corporate leaders as part of the power elite, was always one of the five pillars of fascism, and you saw it in Italy, in Spain, in Nazi Germany, in the various banana republics etc. However, due to ignorance, a lot of people in the 60's and later effectively redefined it to become something generic, basically anything they didn't agree with.

  11. Re:Musk is a dreamer not a calculating rational ac by DeBaas · · Score: 3, Interesting

    over a decade ago I got a traffic ticket that was (in my view) bullshit. I didn't take it to court since, as a contractor, the hours lost would have cost me a lot more than the fine. Years later I can still feel pissed about that ticket.

    You're probably right that taking the settlement would have been the rational thing to do. But I do understand him.

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  12. Re:Integrity by Anonymous Coward · · Score: 3, Interesting

    Transparency requires telling the truth - Musk did not tell the truth. He did not have funding secured.

    I call bullshit on your bullshit. You have no idea what sort of private conversations and handshakes were made. And by your statements here, you've already tried and convicted him.

    Elon Musk said specifically that he was "considering" taking Tesla private, not that he had decided, or that it was a done deal. The SEC lawsuit is baseless and should get tossed.

    Elon Musk does not play by the rules. He's taken on big oil. big auto, and big aerospace, and he's taken their business. That's what this lawsuit is about - placing government puppets on the Tesla BOD and preserving the status quo.

    The exact same thing happened when Jack Northrop started taking contracts from Convair (absorbed by Lockheed) and Boeing with his revolutionary YB-35. The Northrop YB-35 flying wing was faster and all around more capable than the B-36 that ultimately won. The YB-49 - with modern engines is basically the current B-2, and similar to the soon to be B-21 Raider. Truman era corruption tried to force Northrop to merge with Consolidated Vultee/Convair (now Lockheed) - to keep money and power in the "right hands". Jack Northrop refused, and he lost the contract to produce the bomber that would replace the B-29. In the process Truman's buddies yanked Northrop in all sorts of directions, including changing requirements for no reason other than to hobble the YB-35/YB-49 to make it less competitive against the disaster that was the B-36 - 6 piston engines, 4 jet engines, slower cruise speed than a B-29 and so unreliable that during pre-flight checks the flight engineer would often joke "2 turning, 2 burning, 2 smoking, 2 joking, and 2 unaccounted for, Sir!". Ultimately, when the YB-35/YB-49 was canceled, the government forced the transfer of Northrop's jet and turbine engine technology to GE. Fortunately, Northrop persisted and didn't sell out or give in to government corruption - and neither should Musk .

    Had Truman era corruption not interfered with the free market advances and visionary designs of Jack Northrop (a self-taught engineer with no formal college degree), the US could have skipped over a trillion dollars of government fraud and corruption that went on for decades, and in many ways continues to this day - the same kind of fraud and corruption that is now being exacted upon Elon Musk and Tesla.

    As others have suggested above - ironic justice would be for the SEC lawsuit to drive Tesla stock prices down enough for Elon to finally take Tesla private.

  13. Re:Musk is a dreamer not a calculating rational ac by DeBaas · · Score: 3, Insightful

    Except when the SEC and Musk/Tesla disagree on if the evidence exonerates him. They probably did provide the evidence and just disagree on what that means to the case.
    The fact that the offered settlement is so far from what the SECs demands, suggests to me that the SEC isn't so sure about their case.

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