The Securities and Exchange Commission’s lawsuit, filed Thursday, charges Musk with securities fraud over his tweets last month about taking Tesla private – a plan that turned out to be largely unfounded and seriously unfunded.
In an apparent effort to do that, the SEC offered Musk a settlement that would have allowed him to pay a small fine and stay on as CEO if he agreed to certain conditions, including restrictions on when he could release information publicly, according to a person knowledgeable about talks between the company and regulators.
Bill Smith of Blaine Capital, which is shorting Tesla shares, said: ‘Musk should be gone, he should have gone a long time ago. Its market value would eventually peak at $64.75 billion on August 7, the day Musk tweeted he was considering taking the electric-car maker private.
The US Securities and Exchange Commission could force Musk to step down as boss of his own company.
On Friday, shares of Tesla plunged almost 14%, reflecting investor uncertainty over Musk’s future at the company.
“If long-term investors believe that Mr. Musk’s vision might not be carried out because he is no longer CEO (the SEC is seeking to bar him from from serving as an officer or director of a USA public company), we could see a capitulation in the shares (i.e. extreme high volume and sharp declines)”.
Thomas Gorman, a partner at the law firm Dorsey & Whitney and former SEC senior counsel, said Musk’s statements, which he made on Twitter, weren’t smart from a business perspective, but that doesn’t necessarily mean Musk committed fraud. I have always taken action in the best interests of truth, transparency and investors. The SEC alleges he did not have the funding secured.
Meanwhile, Tesla shares continued to plummet in after-hours trading, falling over 15 percent from its daily high of $312 to its lowest denomination of $265.
Four early research notes from Wall Street analysts and brokerages all said that Musk might have to resign.
Part of the blame lies with Tesla’s deferential board, which ought to use the moment to recruit a backup to Mr. Musk to take the wheel.
Tesla shares have been volatile for years, but even by its standards, August and September have been dramatic.
In the meantime, Tesla (NASDAQ:TSLA) stock is down big, very big.
Barclays has warned that if Musk is forced to leave, it will send Tesla shares down another $130 – or 48 per cent from their current level.
Tesla last week disclosed that it had received a request from the Justice Department for documents related to the now-infamous going-private tweet. The deal reportedly would have also required Tesla to add two independent directors to its board. Later that day, the SEC held a press conference where co-director of enforcement Steven Peikin spoke specifically to reference the significance of Musk’s chosen share buyback number.
“To be clear, near-term if Tesla is able to ramp the Model 3 over the coming quarters, we believe cash flow should improve”.