Tesla CEO Elon Musk took to Twitter Thursday afternoon to taunt the United States Securities and Exchange Commission, immediately preceding a steady stock decline totaling 7.5 percent within 24 hours. The regulatory body established a no-guilt settlement less than a week ago with both Tesla and its CEO to avoid a lawsuit over alleged securities fraud.
Musk expressed his feelings that the SEC was doing a disservice to Tesla and its long-position shareholders by enabling the success of short sellers. The group, according to Musk who is a self-described "good kind" of socialist, created a negative economic impact and increased a wealth divide nationwide. On Thursday, Tesla's shares decreased from $281 to $268 and continued to decline into trading Friday. In all, shares declined to a low of $260.
The Securities and Exchange Commission verified that it had, in fact, not changed its name to align with Musk's tweet.
The controversy stems from the SEC's investigation into Musk after he had taken to Twitter earlier this year, proclaiming he had secured funding to take the automaker private at $420 per share. This quickly led to an influx in Tesla's market cap and prompted a probe by the SEC. At a later date, the regulatory agency determined that the tweet was against laws pertaining to the Securities and Exchange Act and Musk potentially violated his fiduciary duties as CEO.
The SEC offered Musk a settlement due to the actions, however, it was viewed as an attack on his integrity and he promptly declined. Afterward, the SEC filed suit against Musk. Two days later, he agreed to settle on harsher terms which included separate $20 million fines for both the CEO and the automaker for failing to police Musk's tweets appropriately. A clause in the agreement would also dismount Musk from board chairman for a minimum of three years and require that Tesla implement a social media communications policy, specifically calling out Twitter by name.
Long position shareholders are becoming increasingly frustrated with Musk's tweet first, ask questions later attitude. Some claim that when Musk tweets, shareholder wallets seem to get increasingly lighter. Others have begged Musk to just focus on Tesla and avoid the fight with the SEC, perhaps recognizing that a battle with the regulatory agency could become a stalemate at best.
A United States district court judge in New York has requested a letter penned jointly by Musk and the SEC as to why the settlement should be accepted. The letter is due by next Oct. 11.
The terms of the settlement are quite extraordinary; Musk flipped his position on the acceptance of the terms several times within four days. It is also unusual for a CEO to remain in his or her position while being asked to leave a board seat. However, it is important to note that the SEC has recognized Musk as one of Tesla's most valuable assets. Pending the judge's decision, the settlement could be finalized or ripped up to begin anew.