There Ought to be a Law…

Wait there is and they just don’t care…..

In case you haven’t been following the meandering road of the fortunes of Tesla, you know that electric car maker founded and run by the tantrum obsessed billionaire, you should really pay attention.  Why you ask? For those of us who know just how the system works when it comes to securities regulations, it is quite surprising that this stock has not been halted and Elon Musk removed from his position.  Oh, we forgot, billionaire boy is the largest shareholder.   So there goes that idea….

Wait, what if one of those activist investor funds that is so fond of buying up a stock and forcing control changes were to get involved.  Shouldn’t they at this point?  It is obvious that Mr. Musk is off his meds or smoking the wrong kind of leaf again.  One thing is quite certain, the corporate governance issues at Tesla are large.  

But there is a piece to this puzzle that should be completely illegal, yet it’s actually not.  If you remember back a bit, August of 2018 actually.   Elon Musk used his twitter account, followed by over 30 million people (some of those, or who are we kidding, many of those are Tesla shareholders) to tell the world he had the financing lined up to take Tesla private at a certain price per share.   That was of course above where Tesla was trading.  (You’re thinking stock manipulation aren’t you)  Well that is exactly what the regulators said too and rightfully so.  Cause guess what, no one stood up and said that they were actually financially backing the idea.   Yeah, Musk used social media to tweet an idea, the price of the stock increased, Musk’s fortune increased and everyone who was long Tesla made money.   Seems like a violation of securities law to us. 

The United States Securities and Exchange Commission (“SEC”) investigated and eventually charged Mr. Musk.  After a couple of go arounds on the regulatory merry go round, Musk did eventually settle with the SEC, stepped down as Chairman of Tesla and agreed to have most of his tweets involving Tesla cleared by an in-house securities lawyer.  Oh, and he paid a $20 million fine.  Then there was Tesla’s $20 million fine.  Ouch….if you’re a Tesla shareholder.    Just so the founder can tweet and raise the stock price.  But, if you look at the increase in stock price, it is basically simple.  If we told you that you would have to spend $40 million to make everyone 15 to 20% on their investment, well why not…?

But then the plot thickens.   You see, many shareholders get mad and decide to sue Tesla for its obvious failure to coral its founder from making wild and crazy public statements with no material foundation.  Or basically violating securities law for his apparent whim or manipulation of stock price.   This past January the company settled a lawsuit brought against them for their acquisition of SolarCity in 2016.   The shareholders claim that Musk used Tesla as a piggy bank to bail out a failing solar installation company run by his two cousins.   (sounds like more insider dealing) For this settlement, the board paid approximately $60 million.   But the settlement did not include Mr. Musk, as he is scheduled to go to trial on his involvement.   Which could ultimately cost a whole lot more.

As this was unwinding, the next lawsuit is coming around the pike from the shareholders that feel they were wronged by the August 2018 tweet by Mr. Musk about the company being taken private.  Since, it turns out after the extensive investigation, that was a fanciful idea not an actual true statement.  The most interesting part now folks is, Tesla has decided to forgo what is commonly referred to as D&O insurance.   Directors and Officers insurance, for those who aren’t aware.  

Yes you guessed it, the premium for such insurance went up so much based upon the founder and controlling shareholder’s management of said situations that the cost became untenable.  What did Tesla do?  Tesla decided to take Mr. Musk up on his offer of self insuring any claims for the next year personally.   Yes you read that right. 

Now, a public company’s board is designed to have independent members so that it can keep a watchful eye on the company and its management.   Representing the best interest of all shareholders.   Most of which do not work for and control the company.  You know, the regular people in the world.  The ones who buy and sell on Mr. Musk’s ridiculous tweeting.

But the concept, while not illegal, is contrary to the actual role of the board.   How can the board of directors of a company decide on policies and decisions contrary to the CEO’s desires and views if he is the one that is going to insure them against loss based on any litigation arising out of the board’s actions.   Sounds like a lot of self-dealing right?   How can the board really be impartial?  

IT CAN’T.  Period.  End of story.   It is in direct contravention of the whole reason for there to be board independence in the first place.    So whatever financials, statements and other things come out of Tesla, don’t believe a word of it.  Because it has been bought and paid for. 

Not to mention the new investigation and law suits that will come from Mr. Musk’s ridiculous tweets from today, that the stock price of his own company is too high.  Have you ever heard of a CEO doing such a thing? What is he up to now?  Everyone get some popcorn and a front row seat…………….

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