Thread by @Polixenes13

1/ I've been at odds with some other $TSLAQ bears over the past day about the SEC settlement. Unlike some, I believe it's a good & fair settlement and a feather in @SEC_Enforcement's cap. Let me explain.

2/ The SEC's lawsuit was filed less than two months after the August 7 Musk tweet storm. In the intervening period, the SEC conducted a number of interviews & gathered & reviewed a number of documents that added much to what was known about the funding secured fiasco.

3/ All things considered, the SEC moved very rapidly with its investigation. And it wasted no time filing the suit once it was apparent Musk was walking away from a deal.

4/ You can't evaluate the settlement without considering both parts: settlement of the claims agains Musk and settlement of the claims against $TSLA.

5/ The scope of the released claims is narrow: only the funding secured issue & only on the civil side. Musk & $TSLA still face criminal jeopardy from the DOJ investigation of funding secured while the SEC continues investigating other potential securities law violations.

6/ Musk has to pay $20 million in fines. Many have complained that's only a tiny part of his net worth. But here's the dirty secret: his net worth is mostly paper. It's mostly just $TSLA stock.

7/ Musk can't sell that stock without creating huge downward price pressure. He borrows against it by pledging the stock. He's already borrowed at least $600MM and probably closer to $800MM.

8/ Now Musk will have to borrow $20MM more. And pay interest on that, too. Which, of course, means more borrowing. More stock pledges. More margin loans. It adds more danger to an already dangerous situation.

9/ Tesla also pays $20MM. Under GAAP, that should be a Q3 expense. (If any accountant has a different view about this, let's hear it.) So, in a quarter where $TSLA is straining to show a tiny GAAP profit, that's a material hit.

10/ $TSLA & Musk were required to agree to a number of big changes to Tesla governance. @cppinvest has outlined the changes in a great thread here.

https://twitter.com/cppinvest/status/1046401308104822784

11/ The SEC has to walk a fine line: policing corporate behavior while protecting investors. If you punish $TSLA too much, you punish its investors. These settlements, in my judgment, struck the right balance.

12/ Meanwhile, $TSLA has lots & lots of problems, and they continue to mount. @lorakolodny has a concise summary in this article. cnbc.com/2018/09/28/sec…

13/ Kolodny does not even mention the civil liability $TSLA & Musk face from private litigation arising out of the funding secured fiasco. The SEC lawsuit & judgments almost surely increased the settlement value of those private lawsuits.

14/ In sum, the SEC acted swiftly and decisively against $TSLA & Musk, and did so in a way that gives ample warning to investors & would-be investors.

15/ Yes, $TSLA lives on and Musk remains. But none of their problems have gone away. $TSLA remains structurally bankrupt. Both face many legal perils. And the financial train wreck continues. Better for the SEC to allow all those stories to play out in the course of time.