SEC’s allegations against Elon Musk
In the first part of this series, we discussed how the SEC is reportedly seeking to charge Tesla’s (TSLA) CEO, Elon Musk, for contempt. Musk has always been outspoken about Tesla’s ability to deliver massive future growth. He often communicates with Tesla investors and his large number of followers via Twitter. If the SEC manages to charge Musk for contempt, he might not have many options left this time. Let’s find out why.
Elon Musk’s options
On Monday, a Bloomberg report quoted Charles Elson, an expert on corporate governance, as saying, “Having your CEO in contempt of an SEC action is a pretty bad thing.” Elson, the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, also called Musk’s action “unbelievable” after the SEC “settled with him” a few months ago.
In September 2018, Tesla’s settlement with the SEC required Musk to step down as Tesla’s chair. The regulatory body barred Musk from becoming Tesla’s chair, but three years later asked the company to appoint an independent chair. The SEC also asked Tesla and Musk each to pay a $20 million penalty.
On November 7, Robyn Denholm was appointed as Tesla’s new chair of the board. Denholm, who is working at Australia’s largest telecommunications firm, Telstra, as CFO, is likely to join Tesla after completing her six-month notice period at Telstra.
Unlike last time, it could be difficult for Musk to defend himself against the SEC’s charges this time. If proven guilty, the SEC may ask Musk to pay a heavy penalty, or it could also ask Musk to step down as Tesla’s CEO. While the situation might become clearer in the next few days, these options are still based on speculation. Until then, Tesla stock might continue to suffer and remain highly volatile.
On a month-to-date basis, Tesla was trading with 2.7% losses as of February 25, and these losses are likely to extend in the coming days. By comparison, other companies such as General Motors (GM), NIO (NIO), Apple (AAPL), NVIDIA (NVDA), Alibaba (BABA), and Intel (INTC) have risen by 2.9%, 14.2%, 4.7%, 10.4%, 8.8%, and 12.7% month-to-date, respectively. In contrast, Ford (F), Tencent Holdings (TCEHY), and Baidu (BIDU) have lost about 0.5%, 1.0%, and 4.4% in February so far.
In the next part of this series, we’ll discuss how Elon Musk’s anger with the SEC was evident in his recent interview.