Tesla’s Elon Musk could settle SEC suit but ready for fight, say sources

The US Securities and Exchange Commission accuses Musk of tweeting false and misleading information in August about financing for his now-abandoned plan to take the company private; seeks to remove him as an officer or director

PUBLISHED : Saturday, 29 September, 2018, 5:45am
UPDATED : Saturday, 29 September, 2018, 5:45am

Tesla’s Elon Musk could settle with US regulators who have sued to remove him from the electric carmaker’s leadership, but he is prepared to fight the securities fraud lawsuit against him in court, sources said on Friday as shares plunged about 14 per cent.

Musk, Tesla’s chairman and chief executive, has been directly involved in almost every detail of its product development and technology strategy, and is credited as the driving force behind the loss-making company’s ability to raise capital.

The US Securities and Exchange Commission accused Musk on Thursday of tweeting false and misleading information in August about financing for his now-abandoned plan to take the company private, and said it was seeking to remove him as an officer or director.

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The billionaire entrepreneur said he had done nothing wrong and the company’s board said it supported him.

Musk, 47, walked away at the last minute from a settlement with the SEC that would have required him to give up key leadership roles at the company for two years and pay a nominal fine, according to reports on Friday.

But sources, who requested anonymity because they were not authorised to discuss the matter publicly, said that while Musk was ready to go to trial he could still settle. They did not discuss possible terms.

CNBC reported that Musk had turned down an SEC deal to give up his role as chairman, while Fox Business Network reported that Musk had been offered a temporary ban as CEO.

Aeisha Mastagni, a portfolio manager for the California State Teachers’ Retirement System, a Tesla investor, said she was concerned about the board’s ability to oversee Musk and the company and that she would welcome changes to Tesla’s board.

“I think this board is insular, ripe with conflicts; it’s the poster child for bad corporate governance,” she said.

The board also lacks a director who could take over for Musk, said investment adviser Cornerstone Capital’s research chief, John Wilson. “The problem for investors is that an investment in Tesla is an investment in Elon Musk,” he said.

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Musk has hired Stephen Best at Brown Rudnick, who successfully defended internet billionaire Mark Cuban in an insider trading case, according to people familiar with the plans who also asked not to be identified. He also hired former Assistant US Attorney Chris Clark of Latham & Watkins to defend him in the case, the people said.

Tesla did not immediately respond to a request for comment. The SEC declined to comment on the settlement reports.

One person with knowledge of the SEC’s thinking said on Friday that the SEC civil lawsuit or a potential settlement did not preclude further action by the Justice Department, which has a higher standard of proof to make a criminal case.

The Justice Department declined to comment.

In a previous fraud case over blood-testing firm Theranos, the Justice Department brought criminal charges three months after the SEC announced its settlement with the company’s founder Elizabeth Holmes.

“The SEC wouldn’t delay its case for the DOJ,” said Teresa Goody, CEO of law firm Goody Counsel and a former SEC lawyer.