Tesla stock soared on Monday after the SEC ruling on Elon Musk was announced. The SEC was investigating Musk for a tweet from August 7th. In the tweet, Musk alleged that Tesla would be going private for $420 per share. However, this wasn’t the case.
Following the tweet, the SEC filed suit against Elon Musk for misleading investors. As it turned out, funding for going private hadn’t been secured, contrary to Musk’s tweet.
In their lawsuit, the SEC alleged that Musk “had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a ‘special purpose fund,’ and had not confirmed support of Tesla’s investors for a potential going-private transaction.”
The Securities and Exchange Commission offered Musk a settlement that would see him pay tens of millions in fines and step down from the role of chairman for three years. This comparatively light sentence stood in stark contrast to the potential punishment that securities fraud normally carries: being prevented from being the head of any company for life.
Elon Musk Settles with SEC
On Monday Musk and the SEC reached a settlement that saw him and Tesla both pay $20 million in fines. Additionally, Musk will step down as chairman of the board in Tesla for three years. However, he remains on as the CEO of the company. Additionally, new members have been added to the board and Musk’s tweets will now be supervised by a third party. No, seriously.
This sentence, though it may sound harsh, is actually quite lenient. By announcing that Tesla was going private, the company’s stock soared. Then, after Musk retracted his statements, the company’s stock went into free-fall. It did so again last week when Musk vowed to fight the SEC charges. Then, yesterday, they soared again as Musk agreed to the light settlement.
Tesla’s Future Uncertain
Tesla will be announcing third-quarter production numbers later this week. Between the troubled production of Model 3’s and the drama surrounding their controversial CEO, Tesla is in an odd place. Short sellers have bet heavily against the company, and Tesla’s mounds of debt are evidence to just how much they stand to lose. The following months will be pivotal for the future of the company.