News & Analysis

MUSK’S FUTURE IN QUESTION AS SEC PRESSES CHARGES

tesla_031516gn_leadTesla has seen their stock fall nearly 30% since Elon Musk’s call to take the company private. Photo: Greg Nash/The Hill

The Securities and Exchange Committee (SEC) has raised the idea of removing Tesla Inc. CEO, Elon Musk, from his current position. This comes amid an investigation into Musk’s tweet on August 7th claiming he had funding secured to take Tesla, a publicly traded company on NASDAQ, private at $420 per share. In a complaint filed in the Manhattan U.S. District Court, the SEC says that Musk did not have the roughly $82 billion secured in writing for the shareholder buyout; Musk insists that he had a verbal agreement in place with Saudi Arabia’s sovereign-wealth fund, a practice that he says is quite common for Middle East business deals. His tweet drove Tesla’s stock price up nearly $50 before trading was halted. Here is a chart to illustrate the tumultuous day for Tesla:

Screen Shot 2018-09-28 at 11.23.39 AM

The SEC’s primary accusation is that Musk mislead his shareholders and broke his fiduciary responsibility as CEO of a publicly traded company by releasing false and uncorroborated information to the public. Steven Peikin, co-director of the SEC Enforcement Division said in a statement: “Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders…an officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.” In a separate press release, the SEC reaffirmed that they are pursuing a “bar prohibiting Musk from serving as an officer or director of a public company.” The SEC offered Musk a settlement that would allow him to stay on as CEO after paying a small fine, but he quickly rejected it. He has denied all allegations of misconduct and hired Chris Clark, a former U.S. attorney and attorney for Mark Cuban in his insider trading lawsuit, to defend him.

Musk has made it his mission to quash all investors with a short position against Tesla. Tesla is one of the most heavily shorted stocks on the market with roughly $13 billion worth of shares sold short at its peak in August. One of the more notable investors with a large short position against Tesla is Steve Eisman, the main figure in Michael Lewis’ book The Big Short. He said, “Elon Musk is a very, very smart man, but there are a lot of smart people in this world and you’ve got to execute.” Eisman and the many other “shorters” have forced Tesla to focus on short term, quarterly results instead of the long term goals that Musk prefers to work on–one of his reasons to take the company private. Some believe that the reasoning behind his August 7th tweet was to simply burn all the shorters, as he knew that the stock would jump and ruin their position. In the long run, however, the shorters appear to be winning out against Musk as the stock has lost roughly $20 billion, or 30% of its market value, since the tweet.

Tesla’s stock has faced great volatility this past year. Less than a year ago, investors became optimistic about the Model 3 release; by March, the company lost a third of its value over concerns of debt and supply issues. Musk excited investors in June when he claimed Tesla was reaching its goal of 5,000 Model 3 deliveries a week—then came the downslide. First it was the disastrous conference call reporting Q1 earnings. Then it was Musk’s personal feud with a cave diver rescuing the soccer team trapped in a cave in Thailand. Now comes Musk’s tweet, which has all but hastened this catastrophic slide. Tesla’s future remains very much in Musk’s hands, just as he intends, but to guarantee its future, it is very possible that this may change.

 

Categories: News & Analysis

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