The settlement between Tesla and the U.S. Securities and Exchange Commission stipulates that CEO Elon Musk will no longer have free reign to tweet. Yet on Friday, Musk fired off another damn-the-consequences tweet, calling the SEC the “shortseller enrichment committee.”
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Even though Musk’s Twitter post appears to violate the spirit of the recent settlement, the SEC is largely powerless to stop Musk’s tirades until the settlement is approved by Federal Judge Alison Nathan of the Southern District of New York, which could take several weeks.
She has asked Tesla and the SEC to send a joint letter to explain why the settlement is “appropriate” before she reviews the case.
Sources with knowledge of the matter tell FOX Business SEC regulators are in a bind - they don’t want to punish shareholders of Tesla by coming down on the publicly traded company too hard - but it’s painful to countenance Musk’s blatant flouting of the rules. Sources familiar with the matter worry Musk may make the SEC appear feckless.
Arguably, Elon Musk is in an even more precarious position. Tesla stock plummeted on news of SEC action against Tesla but stabilized on the settlement news. However, it fell 7 percent on Friday following his SEC mocking.
Musk has a lot riding on Tesla stock and not just because his legacy is tied to the success of the electric-car maker. If the share price dips below $360, Tesla will be on the hook for close to $1 billion in convertible bonds due this spring. The cash strapped company hemorrhages money every quarter, and having to pay bond owners a billion dollars could push it over the edge.
At this point, it’s unlikely the SEC will seek to modify the settlement, which allowed Musk to remain at the helm of the company while stepping down as chairman. Within 45 days, an independent chairman will replace Musk, who will be ineligible for reelection for the next three years. Musk and Tesla also are required to pay $20 million in penalties each.
However, it is possible the Federal Judge may strike down the agreement. If the settlement is struck down, the SEC would likely move towards enforcement—it’s unlikely they would be as lenient in that case.
The wisest course of action for Musk would be to put down his phone and cross his fingers the deal gets approved.
For now, it seems the only thing SEC regulators can do is shake their heads and roll their eyes.
Both Tesla and the SEC did not respond to requests for comment by FOX Business.
FOX Business' Charlie Gasparino contributed to this report.