NEW YORK, Feb 27, 2019 (BSS/AFP) – The standoff between US stock
regulators and mercurial Tesla chief Elon Musk has taken a dramatic turn over
a tweet that could cost the entrepreneur his job as CEO of the electric
carmaker.
Musk, 47, is a visionary and inventive boss but is also highly
unpredictable, especially on social network Twitter, where he often
communicates in defiance of rules imposed on executives of publicly-traded
companies.
The Securities and Exchange Commission (SEC) on Monday accused him of
violating the terms of a court-endorsed deal between him and the regulatory
agency stating that he should avoid sending any tweet that could affect the
price of Tesla shares.
On February 19, he tweeted that Tesla would make 500,000 cars in 2019 —
up from the 400,000 that the company had estimated until then, as it grapples
with production problems with the Model 3.
Musk corrected himself four hours later, saying that Tesla would indeed
produce about 400,000 cars this year: “Meant to say annualized production
rate at end of 2019 probably around 500k.”
But that correction was not enough for a federal judge, who gave Musk two
weeks to explain why he should be spared from being held in contempt for
violating the agreement with the SEC.
– Options –
“No CEO would survive this,” said Charles Elson, a corporate governance
specialist at the University of Delaware.
“If the board wishes to get ahead of the problem, they may have to take
action as serious as relieving Musk of his executive responsibilities, at
least for a period of time,” said Stephen Davis, a senior fellow at Harvard’s
Program on Corporate Governance.
For Davis, executives of publicly traded companies have a responsibility
to provide accurate information.
“You have special responsibility to be accurate… if information is not
accurate, then the question arises, are you the right person to be running a
public company?”
Last year, the SEC opened an investigation into Tesla and Musk after he
tweeted that he planned to take Tesla private and already had the financing
to do it — an assertion that proved false but nonetheless made investors who
bet against the company lose millions.
– Credibility at stake –
To settle fraud charges stemming from the tweet, Musk had to resign as
Tesla chairman, both he and the company had to pay a $20 million fine and the
SEC demanded oversight of his social media use.
“We are skeptical that (Tesla) can prove oversight, particularly given
that its new general counsel resigned last week just hours after the social
media posts in question,” said Garett Nelson of CFRA Research.
“We believe Musk is likely to be subject to additional penalties which
could include any number of measures — additional fines, social media
restrictions or worse.”
While the February 19 tweet “was presumably to highlight what (Tesla) has
achieved in a short period of time, it also opens the door to potential legal
jeopardy for Musk,” said Canaccord Genuity analyst Jed Dorsheimer.
The penalty against Musk could be heavy because the SEC’s credibility as
guarantor of investors’ interests is at stake, said Davis.
“It’s not only about Elon Musk. I think at the end of the day it’s also
about the SEC sending a signal to all corporate leaders that the information
they release to the market needs to be accurate,” he added.
Musk’s reasoning is that “if I leave company collapses and everyone loses
so therefore I can do whatever I want” — an argument the SEC should ignore,
Elson said.
“Unless they react to this appropriately, they’ve got a real problem
enforcing these laws against other people.”
BSS/AFP/HR/0902