Did Tesla Violate SEC Regulations During its Sale of Stock on May 18th?
The Company is now under investigation by the SECby Robert Moore, on
It wasn’t even two weeks ago that we reported about the fatal accident in Williston, Florida involving a Tesla Model S that had its Autopilot system engaged at the time of the accident. The thing about that accident, however, is that Tesla kept it under wraps to the public until June 30. Normally, Tesla taking its time to release information regarding the accident wouldn’t be that big of a deal, but in this case, the company may have been in the wrong. According to The Wall Street Journal, Tesla is now being investigated by the SEC for a possible securities-law breach.
The problem is that Tesla, who knew about the accident prior to selling $2 billion worth of stock, failed to tell investors about the incident. Tesla notified the NHTSA of the accident two days prior to the sale of stock and sent its own investigator to the site of the crash on May 18th, the day the sale of stock took place. In fairness, Tesla did alert the NHTSA prior to knowing that Autopilot was in use, but that is a small ray of sunshine in what could be a serious law breach.
The SEC is now responsible for determining whether or not the crash and the facts surrounding it are considering material enough that they should have been disclosed to investors prior to selling any stock. Naturally, Tesla says that the information wasn’t “material” as there was no lasting effect on the price of Tesla stock, and as such, it didn’t breach any securities laws. For what it is worth, Tesla’s stock has risen pretty consistently since the accident, but right after information was released the stock did take a momentary nose dive before climbing back up again. The current stock is sitting at $224,78 as of 4:00 p.m. Eastern time on July 11.
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Why it Matters
The problem here is that, regardless of whether or not the stock has yet to suffer as the result of the accident, investors who did purchase stock on May 18th may not have done so had they known the circumstances surrounding that crash. Considering Autopilot is boasted by Tesla as the best autonomous system on the market, news of the crash could have very easily stopped many investors from purchasing stock.
Normally, corporations are the ones who decide whether or not something is material, and normally is only decided on by the court system when an angry investor initiates a lawsuit. In this case – at least as of the time of this writing, anyway – no investor has filed such a suit, which means this investigation was kicked into motion solely by the federal government. A similar report on Jalopnik indicates that the media outlet contacted Tesla for comment and received a simple response: "Tesla has not received any communication from the SEC regarding this issue. Our blog post last week provided the relevant information about this issue."
So, apparently Tesla has yet to be contacted by the SEC, and at this time continues to hold onto its innocence. That could very well change in the near future. This is one of those weird things that really gets you thinking, though. It was long ago said that people who have nothing to hide, hide nothing. If Tesla didn’t feel the information was material and wouldn’t negatively affect the opinion of investors, why didn’t it just come out with the information in the first place? I personally have nothing against Elon Musk, and I am a big fan of the Tesla brand, but there is something a little sketchy here. I believe than an honest businessman would have and should have disclosed information about the crash to investors instead of sweeping it under the rug until two seconds before media outlets were about to get their hands on it. The SEC may find that Tesla was in the right to withhold information but, to me, Musk still played dirty pool with that one – even if the stocks haven’t suffered yet.
Source: The Wall Street Journal