Elon Musk Is Having a Very Bad Week. So Are Tesla Investors
Sep 29 2018
NEW YORK/SAN FRANCISCO-The U.S. Securities and Exchange Commission accused Tesla Inc. More seriously for Musk, and Tesla, they can ban a director from serving as an officer in a public company - a measure they are pursuing against Musk. But in a characteristically risky gamble, Musk abruptly backed out of the deal.
In a statement to the business news channel, Musk said: "This unjustified action by the SEC leaves me deeply saddened and disappointed".
What just happened?Tesla's chief could have skirted the SEC's recently filed lawsuit but reportedly felt that signing a settlement could have blemished his reputation.
Investors dumped stock in the electric vehicle maker after Musk was accused by USA authorities of falsely claiming in a tweet that he had secured funding to take the firm private. "But if they bring high-profile cases, everybody sees them, and if they win, that sends a message".
But in Silicon Valley, California, a place of regulatory rebellion where legal and personal failings are not often disqualifiers for corporate leadership, some tech leaders lamented the consequences of the lawsuit for innovation and rode to Musk's defense.
The possibility of Tesla without its founder, visionary, and CEO, Elon Musk, rattled investors on Friday as Tesla shares dropped $42.75, or 14%, to $264.77. Musk, the company's largest shareholder, lost $1.6 billion in a single day.
Analysts are divided about the likely outcome of the case. Based on the leak, it seems the program will be running throughout the next year or so; it's unclear when Tesla plans to enable the fully autonomous capability.
But there was immediate concern behind the scenes at Tesla, and the firm's head of investor relations even texted Musk to ask if the tweet was legitimate.
The first and most obvious was Musk's continued use of Twitter, where he posted the "funding secured" tweet that got him into hot water with the SEC. The agency may also impose civil penalties and force him to pay back any "ill-gotten" gains he received from the stock's price fluctuations.
In a lawsuit, the regulator described Musk surprising members of his own team and investors with a series of tweets, starting with the August 7 announcement that he was thinking of taking Tesla private.
Tesla has never turned an annual profit and repeatedly misses production goals. The automaker has roughly $2 billion in cash and faces more than $10 billion in outstanding debts.
Musk's departure from Tesla isn't imminent. "That's what we see with Tesla when Elon Musk is no longer there". This could be read as a positive signal that the SEC is willing to settle or a negative signal that Musk and his team may not be.
The email was viewed by Bloomberg, which reports that it was written by Elon Musk to Tesla employees.
The suit alleges that Musk lied to investors when he announced on social media on August 7, he tweeted, "Am considering taking Tesla private at $420".
"People who create disruptive companies tend to be somewhat abnormal, and that is what leads to these Herculean accomplishments", said Keith Rabois, a venture capitalist who used to work with Musk during one of his early incarnations at PayPal.
The SEC has the power to levy fines on directors and companies if they are proven to have misled investors.
In the meantime, Tesla (NASDAQ:TSLA) stock is down big, very big.
Several days later, a private equity fund partner told Mr. Musk that the transaction structure he was contemplating was "unprecedented".
The SEC said its investigation into Tesla is ongoing.