Imagine what a ‘wrong’ tweet can do to one’s career. In the case of Elon Musk, it cost him a personal fine of US$20Million; another US$20Million as a fine to Tesla; and a reprimand to vacate the chairmanship position of his company for three years – all because of two words, “Funding secured....”
It was sometime on August 7 when Musk floated the idea that he intended taking Tesla private, with a third party [rumoured to be Saudi Arabia’s Wealth Fund] coming in as a partner for a buyout with a tweet that went, “I am considering taking Tesla private at $420 “Funding Secured.” Those nine words sent the stock flying from US$342 to US$370, an 8% jump that prompted the NASDAQ to halt the trading of its shares pending clarification from the company.
Three hours after that market-shaking tweet, Musk went on with a message to his employees justifying his rationale for going private – that is to do away with the disruption of “wild swings” and attacks from short sellers that ‘distracts’ everyone working at Tesla. No word on the leveraged buyout (LBO) nor the third party, except supposition.
As it turned out sometime later, it was revealed that the tweet was merely a joke pulled out of thin air and directed at Musk’s ex-girlfriend ‘Grimes’.
Weeks after, Musk and Tesla drew the ire of confused investors and the wrath from the SEC for such misleading claims that have set a precedent for CEO’s not to tweet their feelings – if it comes to company disclosure.
Of course, and understandably, the SEC will not take this sort of cavalier behaviour sitting down, but are left with no option but to impose severe sanctions to correct and punish this benchmark of what is seen as a ‘new low’ in management behaviour and tantamount to straight out fraud.
The question remains, did Musk intend to defraud Tesla investors; or as we think, did he have it in mind to punish the short sellers that have made Tesla the largest relative short position in the market for any stock?
Whatever those intentions were, Musk and his beloved Tesla ended up paying the brunt of such a criminal and irresponsible tweet.
The last Friday and weekend of September, the SEC charged Tesla and Musk with fraud, accusing him of manipulating markets by tweeting out a speculative buyout offer.
This announcement sent share prices plunging over 15% to new 2018 lows. The SEC further reprimanded Musk, requiring him to remove himself from the chairmanship role of the company immediately.
To some, a Tesla without Musk is taking away the madman at the helm that could potentially bring more harm to the company. To others, investors and employees who cannot see Tesla without Elon Musk, they view the situation much the same way people felt about an Apple without Steve Jobs.
As veteran market observers put it, paying the fine is really a small price to pay to nip all his worries in the bud – for all his fallacious tweets and maneuverings. If he were to drag all of this to court by maintaining innocence, the long probe could possibly have further undermined, cost a larger fortune and potentially destroyed Tesla.
Paying the fine actually saves him from a long and gruesome court battle with the SEC, and puts aside all of his sins to the investing public and the regulators. An SEC probe could crucify Tesla into demise, and the fine comes as the best outcome in an outrageous timeline of events that seems to surround Tesla and Musk perennially.
Monday October the 1st saw the market seemingly agree. Tesla shares roared back and surged eighteen percent as Musk pays the fine and takes the deal. This setback also comes hot on the heels of the release of third-quarter manufacturing numbers that show production levels which support the belief that Tesla can produce 5,000 Model 3 cars in a week and dispel claims that it is not capable of meeting consumer demands.
There could still be a beautiful life for Tesla with or without Musk after all. Future secured. Nonetheless, we sense The Musk Tesla Show has many more episodes to run.
Here are the key sections in the settlement filing that hit the SEC vs. Musk docket on the afternoon of Saturday, September the 29th:
Without admitting or denying the allegations of the complaint (except as provided herein in paragraph 13 and except as to personal jurisdiction as to this matter only and subject matter jurisdiction, which Defendant admits), Defendant hereby consents to the entry of the final Judgment in the form attached hereto (the “Final Judgment”) and incorporated by reference herein, which, among other things:
(a) permanently restrains and enjoins Defendant from violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5];
(b) orders Defendant to pay a civil penalty in the amount of $20,000,000 under Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; and
(c) requires Defendant to comply with the undertaking set forth in this Consent and incorporated in the Final Judgment
Here is what Musk will have to do next:
Defendant undertakes to:
(a) resign from his role as Chairman of the Board of Directors of Tesla, Inc. (“Chairman”) within forty-five (45) days of the filing of this Consent and agree not to seek reelection or to accept an appointment as Chairman for a period of three years thereafter. Upon request by Defendant, the Commission staff may grant in its sole discretion an extension to the deadline set forth above;
(b) comply with all mandatory procedures implemented by Tesla, Inc. (the “Company”) regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media (e.g., Twitter), the Company’s website (e.g., the Company’s blog), press releases, and investor calls, and (ii) the pre-approval of any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders
Moreover, while the settlement clears up much of the potential legal confusion ahead, Musk is still on the hook for any potential criminal liability.
Defendant acknowledges that no promise or representation has been made by the Commission or any member, officer, employee, agent, or representative of the Commission with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability.