SEC Season 3: Testing the regulatory red line of US stocks, why does Musk flout the SEC?

Musk and the U.S. Securities and Exchange Commission's (SEC) mouth cannon series entered its third season.

The 2018 settlement between Musk and Tesla and the U.S. Securities and Exchange Commission has reappeared. A few days ago, Tesla's 10-K annual report file submitted to the SEC disclosed that the company received a subpoena from the SEC on November 16, 2021, requesting the latest information on the settlement agreement signed with the SEC that year, including the measures Tesla took to improve corporate governance.

Tesla did not make much disclosure in the SEC's subpoena, saying only that the company regularly cooperated with regulatory and government requests, including subpoenas, formal and informal requests, and other investigations and inquiries.

The Beijing News Shell Financial Reporter noted that Tesla also revealed in the annual report file that the SEC had issued a subpoena to Tesla on December 4, 2019, asking Tesla to provide certain financial data and contract information, including Tesla's regular financing arrangements, but on December 16, 2021, the SEC notified Tesla that the investigation had ended.

Although a settlement agreement was reached, Musk's feud with the SEC has not stopped after 2018, and Musk himself has repeatedly satirized the SEC on social media and said that the SEC is a "short seller rich committee"; in 2021, there are rumors that the SEC will investigate Musk's Dogecoin Tweet, and Musk responded with a high-profile response saying that he hopes the SEC will really investigate.

As the "Iron Man of Silicon Valley", Musk, with 70 million Twitter followers, has always been the biggest Internet celebrity among the company's founders, and his words and deeds have huge traffic that affects the real stock price, so his every move on social media is often accused by the SEC of stepping on the regulatory red line. For now, the publicity dividend brought by the huge traffic will continue to play with the regulatory red line.

After all, the game itself brings huge traffic.

Season 1:

The "privatization" storm began, and Musk lost his chairmanship

In August 2018, Musk said on social media that he was considering taking Tesla private at $420 per share. At that price, Tesla's market value at the time was about $71 billion. Musk then made a more formal statement on Tesla's blog explaining why Tesla was going private.

The most direct reason is that Musk hopes to improve the confidentiality of his company's business information in the highly competitive automotive industry and obtain a relatively favorable competitive position.

In addition, as a public company, Tesla needs to disclose debt levels, personnel changes, the number of cars produced and delivered, and the various lawsuits the company faces on a quarterly basis. This gave the U.S. stocks shorts the "ammunition" of Tesla.

In the face of short selling, Tesla's stock price often fluctuates sharply. Musk has made no secret of his dislike for bears and often ridicules short Tesla bears on social media. Musk believes that privatization will free Tesla from the harassment of the bears.

Spurred on by the news of the privatization, Tesla shares surged 10.99% to close at $379.57. Musk was then charged by the SEC.

The SEC said Musk's news of the privatization on Twitter misled investors, and in the allegations, the SEC said Musk issued "wrong and misleading" statements and did not notify regulators about significant corporate events. According to the filing, the SEC sought to ban Musk from serving as an executive or director of a public company, provided he was found guilty.

In the end, Musk chose to compromise and reached a settlement with the SEC. On October 17, 2018, Tesla issued an announcement that the court had approved CEO Musk's settlement agreement with the SEC. Under the agreement, Tesla and Musk were each fined $20 million, and within 45 days Musk resigned as chairman, his position will be replaced by an independent director, but he is allowed to retain the CEO position and also serve on the board.

Meanwhile, within 90 days of filing the settlement, Tesla will appoint two independent directors as board members, while establishing a committee of independent directors to oversee the execution of the settlement and control the public statements of Tesla and its executives. This is seen as a response to Musk's frequent "no words" on Twitter.

Season 2:

Musk went his own way, claiming to send "short seller" shorts to the SEC

Musk, who is full of "Internet celebrity" temperament, did not strictly abide by the above regulations and still disclosed Tesla's operation on social media.

In early 2019, Musk tweeted model 3 production figures, and the SEC asked that it be held guilty of contempt of court. The SEC said Musk violated the initial settlement, and the tweet with Model 3 production figures was not pre-approved by Tesla's lawyers.

After some game, Tesla and the SEC signed an agreement again. In April 2019, the two sides made some changes to the 2018 settlement agreement, which laid out which specific topics Musk could not tweet without the consent of a lawyer.

Tesla said in its annual report that the U.S. Department of Justice had asked the company to voluntarily provide it with information about the above-mentioned matters related to Tesla's privatization and Model 3 production, and since providing the information in May 2019, Tesla has not received further requests from the U.S. Department of Justice on these matters, and believes it has come to an end.

But it wasn't over. In 2020, Musk called the SEC the "Committee of the Short Sellers get rich." He also said he would send the SEC some "short seller" shorts. Soon, Tesla's official website was on the shelves to sell a red satin shorts. It is understood that in English, "short selling" and "shorts" are the same word: Short. According to media analysis, this represents a mockery of short sellers.

On November 7, 2021, Musk tweeted a survey aimed at understanding public opinion on whether 10 percent of Tesla stock should be sold. Affected by this news, Tesla stock shares fell by 16% in the following two days. Musk began to reduce his holdings in Tesla stock, with a cumulative reduction of more than $10 billion.

On November 16, 2021, the SEC issued a subpoena to Tesla requesting information about the management processes involved in the previous settlement. The SEC asked Tesla to clarify whether Musk's statement met the requirements of the previous settlement agreement.

In addition, some Tesla shareholders appealed to the court to review the company's internal documents and investigate whether the vote violated a previous agreement with the SEC. Tesla shareholders claimed in a class-action lawsuit that Musk's tweets cost them billions of dollars.

Musk fought back to fundamentally discuss the veracity of his tweets, with his lawyer saying in a court filing that musk said in his August 2018 tweet that he was considering taking Tesla private because it was "entirely true."

Season 3:

Musk played Dogecoin and was again concerned by the SEC

According to media reports, in April 2019, the official account of Dogecoin launched a vote on Twitter to select the CEO of Dogecoin, and Musk was elected with a high vote. Subsequently, Musk tweeted that Dogecoin was his favorite digital currency, and modified his Twitter account information to "former Dogecoin CEO".

Musk's statement on Dogecoin prompted its value to climb rapidly. At the beginning of 2021, Musk tweeted continuously: "We don't need to be billionaires to have Dogecoin, Dogecoin is the people's digital currency." He also said he was going to send Dogecoin to the moon.

At the same time, affected by Musk's statement on Twitter, the price of Dogecoin rose by 500% in one month.

In February 2021, the industry broke the news that the SEC was investigating Musk to find out whether he was suspected of using his personal social media account influence to manipulate cryptocurrencies such as Dogecoin.

There is an opinion in the industry that Musk's tweets about Bitcoin are a form of "market manipulation" and that Musk should be investigated by the SEC. Tesla's intraday decline widened to 7.4% on the day, and Dogecoin fell short-term, extending its decline to 9.8% at $0.051 per coin.

However, on May 8, when Musk participated in hosting the Saturday night live of the veteran American entertainment variety show, he suddenly called Dogecoin a "scam", and then Dogecoin plummeted by more than 30%. Musk's capricious statement on Dogecoin triggered a sharp shock in the price of Dogecoin.

On May 11, Musk launched a vote on Twitter: "Do you want Tesla to accept payments with Dogecoin?" "There were 3.922 million users who participated in the voting. The results show that 78.2% of users support Tesla's payment with Dogecoin.

On May 21, 2021, Musk said he did not and would not sell any Dogecoin. The value of Dogecoin has risen sharply again.

Extra:

The racial discrimination case was fined hundreds of millions of dollars, and the berlin factory in Germany was blocked from starting operations

In addition to the SEC, Tesla also faces other legal proceedings. According to the annual report documents, Tesla was sued by a former black employee last year for racial discrimination in its work environment, and was finally sentenced by a jury in the federal court in San Francisco that Tesla needed to compensate the former employees for $137 million.

Tesla said in the filing that the company had filed an objection last November asking the court to retry or reduce the amount of damages. Tesla said the court held a hearing on the issue on January 19 this year and is expected to rule soon, and the company does not rule out appealing the case.

In addition, Tesla's factory in Berlin, Germany, was also fined by the local Environmental Protection Bureau, which initially amounted to 12 million euros, but later fell to 1.45 million euros. The German Environment Agency accused Tesla of not properly disposing of the end-of-life batteries in accordance with the relevant regulations, tesla said it could not predict the final outcome of the matter, but the company had already raised objections in June last year, which is not expected to have a serious adverse impact on the company's business.

According to Musk's previous earnings call, the approval of the production license at the Berlin plant in Brandenburg, Germany, is still in progress, but the Berlin plant has produced a lot of cars last quarter and is expected to start delivering to customers in Europe this year.

Beijing News shell financial reporter Lin Zi Editor Xu Chao Proofreader Yang Xuli