Naperville Business Lawyer Discusses the SEC Lawsuit Against Tesla and Elon Musk

Tesla, Naperville business law attorneyThe United States Securities and Exchange Commission (SEC) is a government agency that is tasked with protecting investors, maintaining “fair, orderly, and efficient markets, and facilitating the formation of capital. According the SEC itself, it “strivers to promote a market environment that is worthy of the public’s trust.”

As a business law attorney, I make it a point to warn my clients never to put themselves in the crosshairs of an SEC investigation. If your company is being investigated by the SEC, it means that there is reason to believe that you might be doing something unethical to influence investors or the securities market. Over the last week or so, the SEC publicly took aim at a well-known tech company and its popular CEO over social media posts made by the CEO two months ago.

The Background

In early August, Tesla CEO Elon Musk announced on Twitter that he was “considering taking Tesla private” and that he had “funding secured” to do so at $420 per share. The company’s share price on the NASDAQ exchange was about $340 per share at the time of the tweet. Within three weeks, however, it become clear that Musk did not have the funding, and the plan to go private was scrapped. By that time, Musk and his electric car company had been sued by several investors and the SEC had begun looking into the matter.

The SEC investigation led to negotiation between Tesla and the government agency. By Thursday morning of last week, a settlement offer was on the table in which Musk would remain as CEO but he would need to step down as chairman of Tesla’s board of directors for two years. Suddenly, the board announced that the deal was being rejected and that directors were “fully confident in Elon, his integrity, and his leadership of the company. According to reports, Musk had threatened to resign on the spot if the board had accepted the SEC’s offer.

As a result of the board’s decision, the SEC filed a securities fraud complaint in federal court that looked to separate Musk from Tesla completely. The lawsuit also sought to prevent him from serving as a director or officer with any other publicly-traded company.

The Settlement

On Friday, the day after the lawsuit was filed, Tesla stock plummeted, ending the day with a net loss of nearly 14 percent. One day later, Musk and Tesla decided enough was enough and agreed to a new settlement with the SEC. Under the terms of the accepted agreement, Musk will pay a $20 million fine to the SEC—double the fine in the original offer. Tesla must also pay a $20 million fine, while Musk agreed to personally buy $20 million in Tesla shares.

In addition to the monetary penalties, Musk also agreed to step down as chairman for three years instead of two. He did not admit or deny guilt, but the agreement prevents him from publicly contesting the SEC’s allegations. While Musk will stay on as CEO, the SEO tasked the board with monitoring his communications with investors. Finally, the agreement calls for Tesla’s board to add two independent directors.

Protecting Your Business

If your company is being investigated by any government entity, including the SEC, it is important to seek guidance from an experienced Naperville business lawyer right away. Call The Gierach Law Firm at 630-756-1160 to discuss your case and explore your available options.

 

Sources:

U.S. Securities and Exchange Commission

The New York Times

CNN Money

MarketWatch