In a settlement with the SEC, Elon Musk, 47, agreed to step down as Tesla chairman within 45 days and be replaced with an independent board director. He will remain CEO of the company he co-founded.
UPDATED: 10/5/18 4:25 pm ET – adds stock close
Elon Musk insulted the Securities and Exchange Commission five days after settling a fraud lawsuit brought by the agency, potentially imperiling a settlement that allows him to stay Tesla Inc.’s CEO.
The CEO called the SEC the “Shortseller Enrichment Commission” and chastised the regulator for “doing incredible work” in a tweet late Thursday. Tesla shares dropped 7 percent to close at $261.95 on Friday.
All told, Musk sent 15 tweets in five hours. He has 22.8 million followers on Twitter.
The posts risk jeopardizing a settlement reached Saturday in which Musk, 47, agreed to step down as chairman within 45 days and be replaced with an independent board director. The SEC also hit the billionaire and the electric-car maker each with $20 million fines and is requiring that Tesla implement procedures and controls to oversee Musk’s communications, including his tweets.
“At the very the least, they (the SEC) can read the riot act to Musk’s lawyer,” said Stephen Crimmins, a former SEC enforcement lawyer who’s now a partner at Murphy & McGovern. “Beyond that, if they feel he hasn’t lived up to his deal, they can theoretically seek to pull the settlement.”
Musk was encouraged to enter the settlement by celebrity billionaire Mark Cuban, who litigated for several years with the SEC over insider trading allegations, The Wall Street Journal reported. Musk and Cuban were connected by a securities lawyer who has represented both of them.
“I explained where the SEC used questionable practices in my case, and how he could expect the same,” Mr. Cuban said in an email to the Journal on Wednesday night. “I asked him if he could name five people who had settled with the SEC, knowing he wouldn’t be able to name any.”
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Tesla declined to comment on Musk’s latest tweet. Ryan White, an SEC spokesman, declined to comment.
Reading Musk’s mind
“Reading the mind of Elon Musk is beyond my ability, but he is soon to join the SEC in front of a federal judge to defend the recent settlement agreement,” said Stephen Diamond, an associate professor of law at Santa Clara University, who specializes in corporate governance. “If he doesn’t want to put that deal at risk he ought to pay attention to cars instead of Twitter.”
“I’m shocked,” Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said of Musk’s attack on the agency. “It’s only inviting the SEC to rethink the settlement. And it’s going to make it much tougher to attract independent directors to join the board.”
U.S. District Judge Alison Nathan, who must approve the settlements Musk and Tesla agreed to with the SEC, gave both sides until Oct. 11 to explain why the agreements are fair and reasonable.
The SEC accused Musk in a lawsuit a week ago that he misled investors with his infamous Aug. 7 tweets about having the “funding secured” to take Tesla private. The company’s shares tanked 14 percent the following day as the agency sought to ban Musk from serving as a company officer. After the settlement reached over the weekend, the shares surged 17 percent on Monday.
In court papers and at a news conference, the SEC went to great lengths to spell out Musk’s carelessness and erratic behavior, highlighting his threat earlier this year to “burn” investors betting against Tesla stock. The SEC also alleged that Musk rounded up the buyout price for Tesla to $420 a share to amuse his girlfriend at the time with a marijuana-culture reference.
More tweets
Meanwhile, Musk also dragged investment firm BlackRock into his long-running dispute with short sellers, alleging the fund manager was reaping heavy profits by lending shares they hold to this group of investors. Representatives for BlackRock in London weren’t immediately available for comment. The fund manager held about 3.8 percent stake in Tesla as of the end of June, according to data compiled by Bloomberg.
Musk continued his tirade against short-sellers by sending out another inflammatory tweet at 6:40 p.m. He later reiterated his stance in a separate tweet, which garnered 5,700 likes.
“Short-sellers are value destroyers. Should definitely be illegal,” the tweet said.
At 7:52 p.m., he replied to a tweet he originally posted in 2012 in which he said he would “defend the right of shorts to exist” and that they were “often unreasonably maligned.” This one clocked close to 5,000 likes.
“The last several years have taught me that they are indeed reasonably maligned,” he tweeted.
The SEC, whose @SEC_News Twitter handle has about 251,000 followers, is also active on the messaging service but has refrained from posting about Musk or Tesla since last weekend’s settlement.
The big funds can & will, as they’re suffering a net loss. Index managers like Blackrock pocket make excessive profit from short lending while pretending to charge low rates for “passive” index tracking.
— Elon Musk (@elonmusk) October 5, 2018
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