Tesla in Trouble of Facing Investors’ Lawsuits After SEC Deal Settled
The current ongoing settlement by Tesla Inc with U.S. regulators is poised to calm down investors that are calling for an increase in oversight regarding decision being made by CEO Elon Musk. This is according to predictions made by experts, even as the recent proceedings provide short sellers the opportunity to purse on separate cases, and to observe the probe that is being carried out by the Justice Department.
Both Tesla and Musk are expected to pay $20 million each, and that two new independent directors will have to be brought in to pave the way for the billionaire Musk to step down as the board chairman.
Musk will have to settle the charges filed against him by the U.S. Securities Exchange Commission, stating that he had misled investors regarding a privatization deal he had secured for the company in an August 7th tweet.
That being said, the settlement will still have to go through the court and be approved. Additionally, even if a settlement is made, it will not mean the end of the probe being carried out by the Justice Department on Tesla with regard to Musk’s tweets.
Moreover, the company still has to face lawsuits by other investors and short-sellers who have cried foul over alleged securities law violations, and losses they have accrued in the process.
According to the director of the Weinberg Center for Corporate Governance at the University of Delaware, Mr. Charles M. Elson, the biggest problem for the company is not the pressure of the SEC, rather the private actions that will follow suit after such a public settlement such as this.
That being said, neither Musk nor Tesla has denied or admitted to the findings unveiled by SEC as part of the settlement. Additionally, neither the company, nor Musk has commented on their current predicaments.
Moreover, Musk decided to settle with the SEC after his advisers convinced him that the terms that were put on the table were favorable. Additionally, they advised him that a lengthy court fight would not be favorable for the company.
As a matter of fact, Musk had wanted to use his own funds to personally cover the money lost by Tesla. However, the SEC denied the said proposal, as was reported from an individual privy to the proceedings.
Tesla’s Shares Affected
However, the effects of the proceedings were clearly felt, with shares of Tesla plunging a massive 14 percent on Friday last week. A day after Musk was charged by the SEC for misleading investors.
Interestingly, since his August 7th tweet that the company would privatize, the company’s shares have plummeted a whopping 30 percent, a far shot from his initial dream of $420 a share if the privatization deal would have been successful.
Evidently, claims made by investors could further result in substantial settlements in terms of equity and cash.
Unfortunately for Musk, if an equity claim is settled, it could result in the dilution of Musk’s massive 19 percent stake in Tesla, which would minimize his influence in the boardroom.
That being said, Tesla is expected to release its third-quarter results next week, with investors observing to see whether the initial targets set by the company on its Model 3 will have been met.
Anticipation of Quarterly Findings
As a matter of fact, whether or not the company will make a profit is unknown until the company releases its financial reports for the said quarter.
However, RBC Capital Markets believes that the disclosure of the settlement proceedings by SEC on Saturday is a positive outcome for the company, Musk, and all the shareholders.
That being said, the opportunity of a new chairman and the expansion of the board will provide the company with a greater path to transparency and accountability, as according to RBC Capital Markets analyst Joseph Spak.
That being said, Musk and Tesla accepted the relatively harsh punishments that the SEC ordered on them than the ones that were initially mentioned in the claims. This is according to information that was provided by an individual close to the proceedings of the deal.
Initially, the SEC was willing to accept a fine of a couple of million dollars with the removal of Musk as the chairman for a period of two years. However, upon hearing those demands, Musk refused, prompting the SEC to increase its monetary demands.
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