Tesla supporters are hoping that a settlement between Elon Musk and the SEC will bring an end to what one commenter called Tesla’s Summer of Needless Drama. Earlier this week, the stock market regulatory agency accused the impulsive Iron Man of misleading investors with his market-moving tweet about a plan to take Tesla private, and said it would seek to bar him from serving as an officer of a public company.
Under the settlement, Elon Musk will keep his job as CEO of Tesla, and remain on the company’s board, but he must resign as Chairman within 45 days, and can’t be re-elected to the role for three years. He must personally pay a $20 million fine, and Tesla will pay an additional $20 million. Neither Tesla nor Musk admitted wrongdoing.
Perhaps most importantly, Musk has agreed to submit future tweets to some sort of review process. The settlement document refers to “mandatory procedures implemented by Tesla,” under which Musk must submit to “the oversight of communications relating to the Company made in any format,” and “the pre-approval of any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders.”
“Tesla’s board will adopt important reforms – including an obligation to oversee Musk’s communications with investors,” explained Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
Most observers seem to agree that this is a good resolution to what could have been an existential problem for Tesla. With Model 3 deliveries on track for a record quarter and Autopilot 9 beginning to roll out, there’s every reason to expect TSLA stock to rally on Monday, and to continue climbing until the next crisis.
“This is a good resolution for Tesla stakeholders,” said Robert W. Baird Analyst Ben Kallo. “I expect the stock to trade materially higher on this and into the quarter where we can focus on the fundamentals.”
“Both sides have pulled back, taken a deep breath and realized that…they need to put this behind them,” said Stephen Crimmins, a former SEC enforcement lawyer. “Shareholders with Tesla will be able to go to sleep tonight knowing the Musk will remain at the helm of the company. At the same time, there will be appropriate restraints in place.”
However, legal experts say that the SEC’s complaint has significantly strengthened the various investor lawsuits still pending. It revealed facts based on emails, documents and interviews that private lawyers haven’t gained access to yet.
Source: SEC, Bloomberg