Musk was wise to settle with SEC, say analysts

Two days after being charged with fraud by the SEC, Tesla founder Elon Musk settled with the U.S. regulator, relinquishing the chairman's role and paying a fine.

David Whiston, CFA, CPA, CFE 2 October, 2018 | 2:00AM

 Tesla (TSLA) shares crashed on Friday after news broke the previous night that founder Elon Musk had been charged with fraud by the US regulator, the Securities and Exchange Commission. Just a day later the SEC announced a settlement with Musk and Tesla that has seen the shares recover sharply in pre-market trading.

The agency charged Tesla with inadequate controls over Musk’s disclosures. Musk and Tesla will each pay a $20 million fine; Musk is barred from being Tesla’s chairman for three years; Tesla will add two new independent directors; and the company will establish controls over Musk’s communications. There is currently no word as to who will be the new independent chairman or new directors.

We think Musk was wise to settle this complaint. The penalties are not severe, in our view, and it puts one legal matter behind the company. The U.S. Department of Justice still has a criminal probe regarding Musk’s Aug. 7 “funding secured” tweet about taking Tesla private. Tesla’s stock fell 13.9% on Sept. 28 as a result of the complaint, which could have resulted in Musk receiving a lifetime ban on being a director or officer of a public company, something Tesla probably cannot afford, in our opinion.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Tesla Inc597.95 USD-3.78

About Author

David Whiston, CFA, CPA, CFE

David Whiston, CFA, CPA, CFE  David Whiston, CFA, CPA, CFE, is an industrials strategist for Morningstar.

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