Tesla CEO Elon Musk has been accused by the SEC of violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]. The SEC claimed,
“Musk’s false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla’s stock and resulting harm to investors…Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions. When he made these statements, Musk knew that he 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. He also knew that he had not satisfied numerous additional contingencies, the resolution of which was highly uncertain, when he unequivocally declared, ‘Only reason why this is not certain is that it’s contingent on a shareholder vote.’ Musk’s public statements and omissions created the misleading impression that taking Tesla private was subject only to Musk choosing to do so and a shareholder vote.”
The eccentric and maverick CEO responded,
“This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
It is common knowledge to corporates that the exchange is the first port of call for all public releases to be openly documented for consistency and equal access. It is irrelevant whether a social media feed might be deemed as “in the spirit” of open disclosure to Musk’s personal opinions. The SEC rules are the rules. There aren’t soft interpretations. A listing requirement is to follow the rules of fair disclosure. Whether Musk was or wasn’t aware is irrelevant – as the CEO of a $50bn company he should know better or at least sought the advice from those that do.
In any event if he was true to the spirit of good corporate governance he would have the good sense to realise his position as CEO has become untenable. How the board can have confidence in him is beyond CM? The multiple senior resignations give an insight but for all of Musk’s instellar cosmic brilliance as a salesman, unfortunately laws are there to provide safety for investors. The shares are offered 13% lower in the aftermarket.
A court will ultimately decide his fate but the $420 a share with secured funding unraveled so quickly as to question his judgement.
Investors, even the die hard believers, don’t need a CEO already under the pump to be distracted anymore than he already is. It is a shame because he is undoubtedly a brilliant mind. Unfortunately that would seemingly make him feel he’s somewhat untouchable leading him to make knee jerk decisions such is what he’s been charged over.