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SEC Letters Show That Tesla Failed to Oversee Elon Musk's Public Communications As Directed

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【Summary】The Wall Street Journal reports that correspondence sent to Tesla in 2019 and 2020 from the SEC said tweets Elon Musk wrote about Tesla's solar roof production volumes and its stock price were not pre-approved by Tesla's lawyers. The vetting of Musk's communications is part of a 2018 settlement with the SEC after a tweet by Musk about taking Tesla private at a $420 a share.

Eric Walz    Jun 02, 2021 1:00 PM PT
SEC Letters Show That Tesla Failed to Oversee Elon Musk's Public Communications As Directed
Letters to Tesla from the SEC reveal that the company failed to vet public statements from Chief Executive Elon Musk as directed.

In Aug 2018, Tesla Chief Executive Elon Musk got in hot water with the Securities and Exchange Commission (SEC) after a tweet about taking Tesla private at a $420 a share, which at the time would have given Tesla a $72 billion valuation. 

Musk suggested that funding was already secured to take Tesla private from the Public Investment Fund (PIF) of Saudi Arabia. But the controversial tweet sparked an SEC investigation into the company and its Chief Executive Elon Musk.  

The Saudi PIF was established in 1971 to provide financing for projects of strategic significance to Saudi Arabia's national economy. The fund invests in high-tech fields such as telecommunications, aerospace and green technologies, including electric cars, with a focus on renewable energy and information technology.

The $420 share price was substantially higher than Tesla's current stock price at the time, which was just over $70. 

As a result of the SEC investigation and subsequent settlement with Tesla in Sept 2018, it ordered the company to vet any material public statements Musk made about Tesla, including social media posts.

But according to the Wall Street Journal, which first reported the SEC letters, correspondence sent to Tesla in 2019 and 2020 from the SEC said tweets Musk wrote about Tesla's solar roof production volumes and its stock price were not pre-approved by Tesla's lawyers as part of it settlement with the company, citing records of communication that have not been previously reported.

"Tesla has abdicated the duties required of it by the court's order," the WSJ reported, citing a letter signed by a senior SEC official.

After its investigation into the company in 2018, the SEC said that Tesla had no disclosure controls or procedures in place to determine whether Musk's tweets contained information required to be disclosed in Tesla's SEC filings as a publicly traded company.  Nor did it have sufficient processes in place to ensure that Musk's tweets were accurate or complete.

Musk and Tesla were fined $20 million each by the SEC for manipulating Tesla's share price with the controversial tweet. In addition, Musk was forced to step down as chairman of the Tesla board for a period of three years and be replaced by an independent Chairman. The $40 million in penalties was to be distributed to harmed investors under a court-approved process. 

Tesla was also ordered to appoint two new independent directors to its board and put in place additional controls and procedures to oversee Musk's public communications, which the Wall Street Journal report reveals that Tesla hasn't fully abided by.

The tweet from Musk in Aug 2018 boosted Tesla share price by nearly 6%. According to the SEC's original complaint, Musk's misleading tweet on August 7, 2018 led to significant market disruption.

At the time, Musk was feuding and trolling Wall Street short sellers that were betting on Tesla's stock falling, hoping to buy the shares back later at a lower price. Tesla is one of the tech world's closely watched stocks, but it's also one of the most shorted stocks on Wall Street.

In a blog post days after the controversial tweet, Musk wrote that the Saudi Public Investment Fund (PIF) offered to take the all-electric automaker private during a meeting on July 31, 2018. However, Musk also revealed that the talks actually started 18 months prior.

Musk said the fund's board first met with him at the beginning of 2017. He confirmed in the blog post that the sovereign wealth fund approached him multiple times about taking Tesla private. 

"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving." Musk said at the time. "This is why I referred to ‘funding secured' in the August 7th announcement."

Instead of the Saudi PIF fund investing in Tesla, it invested $1 billion in Tesla rival Lucid Motors in Sept. 2018. The CEO and CTO of Lucid Motors Peter Rawlinson, is a former Tesla employee, and once served as chief designer of the Tesla Model S. 

Tesla first went public in June of 2010 on the Nasdaq. The company offered 13.3 million shares at $17 each. Now the company shares are trading at just over $600, which has made Tesla the world's most valuable automaker with a market cap of $620 billion.

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