Tesla Inc.’s plunging stock price indicates investors want Elon Musk to quickly cut a deal with the Securities and Exchange Commission.
Tesla Inc.’s plunging stock price indicates investors want Elon Musk to quickly cut a deal with the Securities and Exchange Commission. The question is whether the notoriously unpredictable chief executive officer will take the hint. In suing Musk Thursday, the SEC put shareholders’ worst-case scenario on the table: Musk’s potential ouster from Tesla. The regulator had offered a much lighter punishment that would have allowed him to stay on as CEO, while paying between $5 million and $10 million, according to a person with knowledge of the matter.
Under the scrapped settlement, Tesla would have also faced a financial penalty, though it was lower than Musk’s, the person said.
But the accord was refused, and Tesla shares have tanked. That puts intense pressure on Musk and the electric-car maker’s board to stop the bleeding.
“He needs to settle, and the Tesla board needs to force him to settle,” said John Coffee, director of the Center on Corporate Governance at Columbia Law School.
Tesla plunged 14 percent to $264.77 Friday afternoon in New York, wiping out $7.3 billion in shareholder value. It was the biggest drop for the shares since November 2013, and the stock is now down 15 percent for the year.
Musk, 47, tweeted on Aug. 7 that he had the funding secured to take Tesla private, which sent the company’s shares soaring.
He wrote in a blog post six days later that his statement was based on meetings with Saudi Arabia’s sovereign wealth fund, including one in which an unnamed managing director strongly expressed support for such a transaction.
The Wall Street Journal reported Friday that the Tesla chairman and CEO has dug in on this point. Musk believes he had a verbal agreement in place with the Saudi Public Investment Fund to help finance a take-private transaction, the newspaper said, citing a person it didn’t identify. ‘Nuclear Threat’
Moving with unusual speed, the SEC on Thursday accused Musk of falsely asserting that he had lined up funding to take Tesla private. The regulator said it’s seeking unspecified monetary penalties and, more importantly, will request that a judge bar Musk from serving as an officer or director of a public company. The SEC didn’t sue Tesla.
“My own belief is that the SEC would not have asked for a bar” if Musk had settled, Coffee said. “One can view the proposed bar as a nuclear threat to induce him to settle.”
The regulator’s aggressive move came after Musk rejected a deal that would have subjected him to a short-term bar from serving as Tesla’s chairman, said the person who asked not to be named because the potential accord was never public.