Mega Thread for Tesla Investors

Yes, but an out-of-court settlement could be done quickly, if (and only if) both parties want that to happen.

Some comments over at the IEVs news site suggest Elon may choose to settle this quickly, out of court.

Other comments point out -- correctly -- that Elon's history shows he is definitely not the kind of guy who settles a lawsuit quietly or easily.

Not being a "financial guy", I don't think I have an informed opinion on just how serious this is, but it looks serious to me. When the SEC files a suit against a corporate officer, demanding that he step down and (I'm guessing) agree never again to be a corporate officer, is that usually agreed to by the defendant? Or is that just the SEC's initial demand, with the expectation that they will negotiate a settlement for significantly less?

 

I have a disagreement on a technicality -- a disagreement with how you've worded this; but I agree with the spirit of your comment here.

Technically, there shouldn't be any bar to Elon staying on at Tesla as Head of Design or Head of Engineering or whatever. (In fact, Elon once said he'd like to stay on in that capacity when it's time for him to step down as CEO.) This would only bar him from being a corporate officer, which means he would be barred from being on the Board of Directors, as well as barring him from actually being in charge of the company as CEO or General Manager or some such similar top-of-the-pyramid position.

But in practical terms, you're almost almost certainly correct, Bob, because Elon isn't the kind of guy to take a forced demotion like that. He'd almost certainly quit rather than accept being demoted that far.

At least, that's the way I see it, and on those particular points I doubt I'll be shown to be wrong.

 

I quoted from the post you made today at 3:17 PM, according to the display on my monitor (I'm on Central Time, so your monitor may show a different time.)

If you actually want to have a meaningful discussion, then please stick to the facts or fact-based opinion. As a reminder, this is a social media forum, intended for discussion.

If you're only interested in posting FUD, without any attempt to stick to the truth and without engaging in meaningful discussion, then let us know, and we'll all just put you on "ignore", which would be what that sort of anti-social behavior deserves.

 

There is a generic definition for Corporate Officers and each company can define who the corporate officers are. Usually a handful of officers are designated such and many not and usually does not include all the CxOs. Usually it is the CEO, President, CFO, COO and may be a couple of others. Chief Technology Officer or Designer etc need not be designated as Corporate Officers. In my company, CEO has over nine direct reports, but there are only 4 corporate officers including the CEO. However, if Elon is not a corporate officer, his powers to speak on behalf of the company are limited and he will have a titular boss.

However, SEC complaints will take a long time to resolve, there will be negotiations and it most probably will never go to trial. Yes, Elon may pay a big fine and agree not to make such statements, but I do not expect much more than a slap on wrist and a possible fine. This is not the end of the road for either Tesla or Elon. Quarterly results, sales trend in the next 1-2 quarters, ability to service debt etc will determine if Elon stays or goes. Nothing will happen in the short term.

https://definitions.uslegal.com/c/corporations-corporate-officers/
Corporations Corporate Officers Law and Legal Definition
Corporate officers are the people with day-to-day responsibility for running the corporation, such as the chief executive, chief financial officer and treasurer. A corporate officer is a high-level management official of a corporation or an unincorporated business, hired by the board of directors of a corporation or the owner of a business, such as a president, vice president, secretary, financial officer or chief executive officer (CEO). Such officers have the actual or apparent authority to contract or otherwise act on behalf of the corporation or business

Officers serve at the pleasure of the Board of Directors, unless the articles of incorporation or bylaws state otherwise. Requirements for the number of votes necessary for removal and whether the removal may be with or without cause vary by corporation.

 

I'm sure that many people don't understand that not every company executive is a "corporate officer", so thanks for explaining. I personally knew that, but only because I've actually been a corporate officer, as a member of the Board of a not-for-profit club. I had no idea that I would actually be one of the people who was financially responsible for the club's treasury and expenses, until I was elected to the Board and that was explained to me! That was a rather sobering life experience.

So yes, even if Elon was banned from being a corporate officer of a publicly traded company, he could in theory stay on as Chief of Design or VP of Engineering, or whatever title they wanted to give their "idea man".

In practice, though, I don't see that anyone with as big an ego as Elon has, nor someone who's as much of an "alpha male" as he is, would be willing to take that big a demotion in order to stay with the company. Elon's drive to be the "one and only guy in charge" is much too strong for that, as anyone who is aware of the history of Tesla Motors/ Tesla Inc. should know.

Where I think Elon would be most missed, as far as the ongoing health and growth of Tesla goes, is his ability to raise funds. He is apparently a world-class genius at investor relations, and I don't think he can be replaced in that capacity by anyone even remotely as able. If Elon goes, Tesla's growth rate is almost certainly going to be drastically reduced.

So, hopefully Elon and the SEC can negotiate some sort of settlement which will allow him to remain as corporate officer. I wouldn't at all mind seeing Elon step down as CEO, nor would I at all mind it if he ceased being the #1 company spokesman. But Elon absolutely should remain on the Board, and remain as head of Investor Relations, if Tesla is to continue its phenomenal growth rate.

All just my opinion, of course.

​

 

Martha Stewart wasn't convicted of insider trading or any other financial malfeasance. She was convicted of (or plead guilty to) perjury; for lying under oath during investigation of possible insider trading. Furthermore, that was a criminal case.

That doesn't even remotely inform the case of the SEC vs. Elon Musk, which is a lawsuit -- a civil case, not a criminal one.

​

 

Per Wiki:

According to the U.S. Securities and Exchange Commission (SEC), Stewart avoided a loss of $45,673 by selling all 3,928 shares of her ImClone Systems stock on December 27, 2001, after receiving material, nonpublic information from Peter Bacanovic, who was Stewart's broker at Merrill Lynch. The day following her sale, the stock value fell 16%.[47]
. . .
On June 4, 2003, Stewart was indicted by the government on nine counts, including charges of securities fraud and obstruction of justice. Stewart voluntarily stepped down as CEO and Chairwoman of MSLO, but stayed on as chief creative officer. She went on trial in January 2004. Prosecutors showed that Bacanovic had ordered his assistant to tell Stewart that the CEO of ImClone, Samuel D. Waksal, was selling all his shares in advance of an adverse Food and Drug Administration ruling. The FDA action was expected to cause ImClone shares to decline.[51]

Monica Beam, a shareholder of MSLO, also brought a derivative suit against Stewart and other directors and officers of the company. It came before the Supreme Court of Delaware in 2004 and was ultimately dismissed.[52]​

If Musk had bought or sold Tesla stock during the incident to enrich himself that would show a criminal intent. But I didn't see that in the complaint. Feel free to quote from the legal complaint where that is cited.

Bob Wilson

 

Also from Wikipedia (source):

Trial
[snippage] During the trial, Stewart maintained her innocence.[7]

On February 27, 2004, Judge Cederbaum dismissed the charge of securities fraud which could have led to up to ten years in prison and a $1 million fine. The judge found that "no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her own company."[8]

Verdict
The jury deliberated for three days following the five-week trial. On March 5, 2004, Stewart was found guilty by the jury of eight women and four men on all four remaining counts: conspiracy, obstruction of justice, and two counts of making false statements to a federal investigator.[9] She was not found guilty of one of the most publicized charges: having falsely claimed that there was an agreement to sell her shares when they fell to $60.00. The jury did find that Stewart lied and obstructed justice on other grounds, including her claim that she was reminded of the prior $60.00 agreement and urged to sell on that basis.
​

So clearly I overstated the case by saying Martha Stewart was sent to prison only for perjury. Well, that's what I get for relying on what some talking head on a TV political analysis show said, instead of checking out the facts for myself. The guilty verdict on the "conspiracy" charge, and I'm guessing also the "obstruction of justice" charge, would seem to be a result of either insider trading, or an attempt to cover that up, or both.

​

 

Quoted Musk: "Am considering taking Tesla private at $420. Funding secured."

• "Am considering" - not announcing Tesla going private but something he wants but not yet achieved.
• "taking Tesla private at $420." - a goal, not an announced accomplishment.
• "Funding secured." - so the question is could Musk have been misled?

To me, this is the only part of the government case that may have standing. So let's take a close look:

"3. Musk knew or was reckless in not knowing . . ." - Here the government claims either "Musk knew" or "not knowing." Short of an essay by Musk on the legal requirements of how a company goes private or even a corporate takeover is done, this is a heavy lift. There is nothing else but an outline of the steps needed to go private. This would be an excellent outline for a business school class on 'how it is done.'​

Silly statement "4. Investors reacted ..." simply goes back to stocks are a gamble. Their reactions have no bearing on whether or not Musk was misled on "Funding secured." The following "5. Musk's ..." is a restatement of #4.

Addressing the legal basis, "6. By engaging in the conduct alleged ..." which means it is something to be decided in a jury trial. Items 7-9 are restating the legal basis.

Now in terms of remedies, "10. ... Musk oversees all product development, engineering, and design of Tesla's products." Now the SEC has identified how critical Musk has been to Tesla operations. This significantly risks the future of Tesla as a company because as restated in "11. Tesla, which designs, develops, manufactures, and sells electric vehicles and energy generation and storage systems ..."

Statements 12-14 assert that Musk uses Twitter. Good thing no one else like the President of the USA does this." Fine, it is laying out how Musk communicates.

Statement 15 describes how 'short' sellers operate. In "16. ... Tesla has been unfairly targeted by short sellers ..."

Statement 17-18 says Musk met with Saudi Investment Fund. Now we get to "19. ... he assumed the the lead Fund representative was proposing a "standard" going-private transaction ..." Now even the government states Musk had 'assumed' which is a far from a deliberate act to mislead others. Restating the government claim, "20-22" are more details about Musk's understanding or misunderstanding. Again, the government provides a step-by-step list of what would be required.

Statements 23-59 shows Musk learning how going private is handled, a painful lesson. But there is a big gap between venial and accidental. Then "60. On the next trading day ..." again the stock gamblers were playing.

Statements 61-67 more on the education of Musk. Then we go full circle to:

"Musk Knew or Was Reckless in Not Knowing ..."​

Again, the government eviscerates their claim by "Not Knowing."

Statements 68-74 again claims facts not in evidence, the knowledge Musk had about what it takes to go from a public to a private corporation. He knew the advantages of stability to the SpaceX stock prices versus the wide spread, baseless speculations of financial 'news.'

Statements 75-77 restates the stock gamblers went for a ride.

It ends with the "CLAIM FOR RELIEF" which for completeness are:

I. Finding that Defendant violated the provisions of the federal securities laws as alleged herein;

To be determined at trial. There is a open question of intent versus ignorance.

II. Permanently restraining and enjoining Defendant from, directly or indirectly, engaging in conduct in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5];

Citing the statute, kinda redundant.

III. Ordering Defendant to disgorge, with prejudgment interest, any ill-gotten gains received as a result of the violations alleged herein;

Facts not detailed in the allegations. Had Musk sold or bought stock at the time, game, set, point but I didn't find Musk had made any gains in the allegations. Can you find any?

IV. Ordering Defendant to pay civil penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];

Pay the fine after adjudication.

V. Ordering that Defendant be prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C.
§ 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)]; and

This is a sensitive point because Musk is the chief engineer. Loss of his engineering expertise would be the SEC fatally shutting down Tesla.

VI. Granting such other and further relief as this Court may deem just, equitable, or necessary.

Pointing a finger and saying TISK TISK TISK.​

Bob Wilson

 

Nothing I said is inconsistent with what you are saying. There are 2 separate issues here. One is "who is a corporate officer and who appoints them". The Corporate officer/s are individuals designated by the Board who work under the supervision of the Board to contract on behalf of the company are designated for legal purposes. Now these officers can delegate further, but for the Government purposes, these officers are named people who appear in proxy statements. Second can a person have a very senior role and not be a corporate officer? It depends on the role but the CEO for example by definition should be a corporate officer. The Martha Stewart example proves my point. SEC and Martha Stewart agreed that she will not be a corporate officer. This was an agreement between them. Even if the Board appointed her, she was legally obliged to decline, based on her agreement with the SEC. So she became Creative Officer of something for the period of the injunction, and someone else was ostensibly running the company. If Elon signs such an agreement, he could be Chief Technology Officer or something like that and work for Tesla, though there would have to be a different CEO and some actions would have to be taken by the CEO not Elon.

You can argue that Elon violated the law etc etc. The reality is that it will difficult to prove as Elon will have the best lawyers money can buy. I am not arguing with you if you are right or wrong, all I am saying it is that it is not a slam dunk. SEC has lost a lot of cases, especially when they go against well heeled defendants. That is why they prefer negotiated agreements to avoid a costly trial with unpredictable outcomes. They were supposed to have an negotiated agreement which fell apart in the last movement. My guess is that Elon is gambling that he can negotiate a even better deal that what was offered. https://www.thisisinsider.com/elon-musk-blew-up-tesla-settlement-with-sec-last-week-2018-9

I do see this as a another reason why Elon should leave such matters to others and concentrate on what he does best, product innovation. This is definitely a major distraction. However I do not believe that this in itself will cripple Tesla or Elon. Taken collectively, the issue may be different.

A request, please consider this post in its entirety, not just pieces.

 

No, as I keep pointing out, the Board can decide that the Chief Engineer is not a Corporate Officer. It does not mean he cannot have a senior position, he cannot have a limited set of jobs such as CEO, CFO etc. Most companies have between 1-5 people designated as Corporate Officers. TeslaInvestors pointed out about Martha Stewart, she was barred holding a corporate officer position and became Chief Creative Officer (whatever that means) for a period of 5 years. If the injunction is granted, Elon can still be in charge of Engineering, but he will (in theory) have another person acting as CEO.

 

Here is the settlement that SEC proposed, which is a very light slap on the wrist, compared to what it could be. Elon has refused to take this

https://www.cnbc.com/2018/09/28/teslas-musk-pulled-plug-on-settlement-with-sec-at-last-minute.html. He would not be chairman for 2 yeas , 2 independent directors and a fine. This is very light punishment, I tink they treated him with kids gloves, no admission of a crime and he turned that down, I am sure they will negotiate down something and allow him to stay on Chairman


Musk had opportunity to settle SEC case: Sources 3 Hours Ago | 05:50

Tesla and the Securities and Exchange Commission were close to a no-guilt settlement but Elon Musk pulled out at the last minute, sources told CNBC.


Under the deal, Musk and Tesla would have had to pay a nominal fine, and the CEO would not have had to admit any guilt, the sources said. However, the settlement would have barred Musk as chairman for two years and would require Tesla to appoint two new independent directors, CNBC's David Faber, citing sources.


Musk refused to sign the deal because he felt that by settling he would not be truthful to himself, and he wouldn't have been able to live with the idea that he agreed to accept a settlement and any blemish associated with that, the sources said.

 

Sounds like the SEC overplayed its hand. I suspect if they'd offered a fine for the "Funding secured", this would be yesterday's news ... tuition in the school of 'hard knocks.'

Bob Wilson

 

No, "corporate officers" are the Board of Directors, and in some larger companies, a very few others (such as the CEO) who are given general management authority over the entire company by the Board.

​

 

I don't personally think I have an informed opinion, but certainly there are a lot of comments to articles on this topic at the IEVs news site which claim the SEC overplayed its hand.

Re that apocryphal ancient Chinese curse "May you live in interesting times"... well, for those of us following the "story" of Tesla, it's that in spades!

 

With all the extra effort you're putting into parroting, you deserve a reward!