SEC chairman Jay Clayton has already said taking Musk out of Tesla, Inc. (NASDAQ:TSLA) may also harm investors
The Securities and Exchange Commission is between a rock and a hard place, experts say, in deciding what to do about what it told a judge on Tuesday is Elon Musk’s violation of the “clear and unambiguous” terms of a legal settlement the Tesla CEO made in October.
“You can’t stop Tweeting Elon from tweeting, but that might not be such a big problem if he exercised good judgement,” Matt Kelly, editor of the Radical Compliance newsletter and a long-time observer of corporate governance and compliance issues, told MarketWatch. “Instead, he repeatedly displays a deliberate, open and defiant attitude towards the role of the SEC in protecting investors from his recklessness.”
SEC Chairman Jay Clayton argued at the time of the original October settlement that taking Musk out of Tesla may also harm investors, since he is so important to the company. That would be anathema to the regulator’s mission to protect investors.
The October settlement with the SEC resolved a fraud charge resulting from tweets Musk made about a potential Tesla take-private transaction. The SEC said in its legal filing that the requirement was necessary to prevent Musk from “recklessly” sending out false or inaccurate information ever again. Musk and Tesla TSLA, -3.20% had promised the SEC that the CEO would start getting pre-approval for any communications, including tweets, that might contain information material to Tesla or its shareholders.
But four months later, on Feb 19, Musk tweeted out a forecast of automobile production that was not consistent with what the company had reported in its recent earnings release and conference call.
The company’s attorney, Brad Bondi, confirmed to the SEC that Musk had not sought or received pre-approval for the inaccurate tweet that was sent out to his 24 million Twitter followers.
On Tuesday U.S. District Judge Alison Nathan ordered Musk to explain by March 11 why he should not be held in contempt for violating the settlement agreement.
“The SEC enforcement action was ultimately settled not just against Musk but also against Tesla,” Kevin LaCroix, an attorney and executive vice president at RT ProExec, an insurance intermediary focused exclusively on officer and director liability issues, told MarketWatch.
“I would think the SEC has the right to return to court to reopen the matter as to the company, too. The settlement with the company agreed to a number of measures regarding the company’s board (Musk to step down as chairman, independent directors to be appointed). The SEC could say that the company’s board’s is falling short on supervising Musk and that violate the purposes and intent of the agreement,” LaCroix told MarketWatch.
Tesla, the company, also agreed to adopt a “senior executives communication policy” that would spell out who would approve Musk’s communications and how that process would work. The policy, dated Dec 11, 2018, says that the board would appoint its general counsel and disclosure counsel, or in the case of unavailability, its CFO, to be the ones who could pre-approve Musk’s utterances.
Neither Tesla nor Bondi responded to whether the board appointed Jonathan Chang, the company’s new general counsel, and Zach Kirkhorn, the company’s new CFO to be Musk’s tweet-minders.
The SEC also required Tesla to add two new independent board members as part of the settlement. Oracle founder Larry Ellison and Kathleen Wilson-Thompson, who spent 17 years as an executive at the Kellogg Company, and currently serves as the executive vice president and global chief human resources officer of the Walgreens Boots Alliance, joined the Tesla board.
Ellison disclosed he owns 3 million shares in Tesla and has also admitted he and Musk are close friends.
The SEC has more power to force change than it lets on, Kelly told MarketWatch. “It wasn’t that long ago that the SEC forced Elizabeth Holmes to relinquish her control of Theranos, as settlement for fraud allegations. The board has the power to rein in Musk, even fire him. The SEC could use its enforcement leverage against Telsa’s independent directors to force more discipline.”
“The SEC can inform the board they want them to take a more active role in reigning in Musk’s tweets and other social media activity,” said Betsy Atkins, a leading public company director serving on the board of Wynn Resorts WYNN, +0.36% , Schneider Electric SBGSY, +0.48% and Volvo Cars.
“However, if I were the regulator, I would leverage Musk’s desire to stay on as CEO and a board member. I suspect he’d be very unhappy with a 5-year ban on serving on a public company board, including Tesla.”
That’s one of the SEC’s potential remedies, she said.
Atkins believes that market forces will cause the correction needed before any regulatory sanction, even a bigger fine for Musk, does. “If I were on that board, I would be very concerned and want the company to buy additional liability insurance for directors,” Atkins told MarketWatch. “Plaintiffs attorneys are already circling and at some point the current directors and officers insurance carrier may become fatigued and potentially unwilling to immunize the board from the public and private litigation.”
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
By the way, prices are vulnerable to a correction towards 315.19.
The projected upper bound is: 321.42.
The projected lower bound is: 247.24.
The projected closing price is: 284.33.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 39.8373. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 39.24. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 119 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -141.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 1 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 0 period(s) ago.
Rex Takasugi – TD Profile
TESLA INC closed down -9.430 at 285.360. Volume was 106% above average (neutral) and Bollinger Bands were 47% narrower than normal.
Open High Low Close Volume___
298.120 299.000 282.780 285.360 17,096,818
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 300.55 313.76 316.38
Volatility: 67 75 75
Volume: 10,288,211 8,162,429 9,189,278
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
TESLA INC is currently 9.8% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of TSLA.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on TSLA.O and have had this outlook for the last 8 periods. The security price has set a new 14-period low while our momentum oscillator has not. This is a bullish divergence.