Tesla's SEC deal provides ammunition for US probe and investor lawsuits

Houston

TESLA Inc's settlement with US regulators will help soothe investors calling for more oversight of chief executive Elon Musk, experts said, even as it gives ammunition to shortsellers pursing separate cases and to a probe by the Justice Department.

Mr Musk and Tesla will pay US$20 million each, bring in two independent directors and have the billionaire step down as board chairman to settle US Securities and Exchange Commission charges that Mr Musk misled investors by tweeting he had financing for a go-private deal.

That settlement must still be approved by a court, and does not end the Justice Department probe disclosed by Tesla into Mr Musk's tweets or lawsuits by shortsellers and other investors alleging losses and securities law violations.

"The real worry for the company is not the SEC but private actions that follow a settlement like this," said Charles M Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "By paying that size fine, it bolsters investors'" claims over stock market losses, he said.

Neither Mr Musk nor Tesla admitted or denied the SEC's findings as part of the settlement. Neither responded to requests for comment.

Mr Musk settled with the SEC after advisers persuaded him that the terms were favourable and a lengthy court fight would not be in the best interest of the company, a person familiar with the deal said.

Mr Musk had wanted to personally pay the fine for money-losing Tesla but the SEC rejected that proposal, the person said.

Tesla shares plunged around 14 per cent on Friday, the day after the SEC charged Mr Musk with misleading investors, and are down 30 per cent since his Aug 7 tweet saying he was considering taking the company private at US$420 a share.

Investor claims could result in substantial settlements in cash or equity, Mr Elson said. An equity settlement could end up diluting Mr Musk's roughly 19 per cent stake in Tesla, further reducing his influence on the board.

Still, Tesla shares could stabilise this week on investor relief that the penalties were not higher and that the public face of Tesla will remain in the CEO role under added oversight, analysts said.

Tesla is expected to release third-quarter production this week, and investors are watching to see if it hit targets for the Model 3, a high-volume car. Whether Tesla made a profit likely will not be known until it reports financial results for the quarter.

The settlement disclosed by the SEC on Saturday "is a positive outcome for Elon Musk, Tesla and ultimately shareholders", wrote RBC Capital Markets analyst Joseph Spak, who added that he expects Tesla shares to recoup some of their losses from last week.

An expanded board and new chairman offers hope that "a true check on Elon will emerge and there will be greater accountability" over Mr Musk's statements and business targets, Mr Spak added. REUTERS