Tesla shares soar after Musk settles with SEC
Tesla shares soared by more than 16 percent in afternoon trading Monday after CEO Elon Musk settled a federal lawsuit over the weekend that could have resulted in his ouster from the company and thrown the all-electric carmaker into chaos.
The Securities and Exchange Commission sued Musk for allegedly misleading investors in August when he announced on Twitter that he planned to take the company private and proclaimed that he had already secured the funding to seal the deal. Regulators sought to remove Musk from Tesla and ban the billionaire entrepreneur from serving as chief executive of any public company.
Under the settlement, which is subject to court approval, Musk will resign as chairman of Tesla within 45 days and be barred from that position for three years. But he will be allowed to remain on the board and will continue to serve as CEO, where he oversees the company’s development, engineering and design. Musk and Tesla each will also pay $20 million in penalties to “harmed investors,” according to the SEC.
Neither Musk nor Tesla is required to admit any wrongdoing as part of the settlement.
Some analysts said the settlement will help the company’s bottom line and improve its long-term prospects. Garrett Nelson, an analyst at CFRA Research, upgraded the stock after downgrading it last week in the immediate aftermath of the SEC’s lawsuit. “With that uncertainty now lifted, and in a manner which we think creates a healthier corporate governance structure than Tesla had previously, our 12-month outlook for the shares is now more positive than it was before our downgrade,” he said in a research note Monday.
But some corporate governance experts were surprised by what they described as a few weaknesses in the SEC’s deal, including the fact that Musk would not have to admit guilt. One person familiar with the negotiations who was not authorized to speak publicly said Musk had originally blanched at the SEC’s insistence that he could not profess his innocence after settling.
Some governance experts said that the SEC, whose deal requires the company to install two new independent directors to the nine-member board, should have demanded that Tesla install an outside chairman in Musk’s vacated role. Without that, some worried, the company would elevate someone who would probably mimic Musk’s leadership.
“The board could pick one of his old sycophantic friends, and that wouldn’t be much different at all,” said John Coffee Jr., director of Columbia Law School’s Center on Corporate Governance. “On the board he’s got his brother, his old buddies and former employees. None of these people have much independence by the standards of a typical corporation. What the man needs above all is adult supervision.”
Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, also questioned why the SEC had not made a stronger effort to reshape the board, where Musk will probably still retain unwavering control even after his resignation as chairman. The board, Elson said, has shown little interest in overseeing or controlling Musk’s worst impulses.
“Look at their response the night the SEC charged him: They backed him completely. That’s not the time for the board to say, ‘We have confidence in him,’” Elson said. “That’s the time for them to say, ‘We’re going to look at these charges and evaluate his role.’”
While a $20 million fine is a substantial amount for tweeting, some legal experts noted that it amounted to a “parking ticket” for a man worth roughly $20 billion.
Tesla declined to comment.