Elon Musk-SEC ‘Boxing Match’ Is the Last Thing Tesla Investors Need

Owner and founder of US electric car maker Tesla, Elon Muskm is again embroiled in a controversy with the Securities and Exchange Commission (SEC) of the United States.

A US judge has been asked by the SEC to hold Elon Musk in contempt for violating a settlement agreement which resulted in a drop in the shares of the company in pre-market trading.

The predictions of some analysts that regulators might come down hard on Musk created a flurry among investors which resulted in a drop of 3 per cent in the company’s stocks. It is expected that the SEC would be tough on Musk because the settlement between the two is just about 5 months old as well as because of disparaging comments made by Muck of the SEC. All of this apparently has not daunted Musk who tweeted on Tuesday morning that “something is broken with SEC oversight.”

The latest action by the US regulators is not ill timed for Tesla and its investors because of already increasing pressure and concerns about the current and future strength of demand for Tesla vehicles, it profit margins and of a closing timeframe for repayment of a debt.

The SEC has taken objection to a tweet of Musk from February 19 which the regulator claimed had violated a promise that was made last year where in the billionaire had agreed that the company’s board would vet his public statements, including tweets.

The SEC however did not make any mention about the remedy it was seeking from the court but reiterated that the pledge from Musk was a part of a settlement between the SEC< Musk and Tesla.

On Monday, the SEC was accused by Musk of not being able to read the annual reports of the Tesla and the next day he tweeted: “Something is broken with SEC oversight”.

“With Tesla/Musk settling with the SEC in October this black cloud was in the rear view mirror for the company,” analysts from brokerage Wedbush said in a note to clients. “This latest tweet (is) a wild card that could potentially bring this tornado of uncertainty back into the Tesla story until resolved.”

In a worse case situation, the SEC could again ask the court to remove Musk as a CEO of the company for not adhering to the terms of the settlement and which could result in a significant drop in its shares, said J.P. Morgan Securities analyst Ryan Brinkman.

“It is difficult to judge the likelihood of the reappearance of this worst case scenario … but on the other hand the current allegations seem much less serious (than last year’s),” Brinkman told clients in a note.

“If the SEC were to seek Mr. Musk’s removal (perhaps subject to yet another settlement), we believe the shares may approach the mid-$200 levels.”

The original tweet form Musk which the SEC had pulled up read: “Tesla made 0 cars in 2011, but will make around 500k in 2019.”  The SEC claimed that this was an inaccurate number as claimed by the Tesla boss and alleged that the board of Tesla had not been approached to get the tweet approved before making it public and spread across more than 24 million people.

(Adapted from Bloomberg.com)

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