1/ Last week, USDC Judge Alison Nathan ordered $TSLA, Musk, & the SEC to submit a joint letter explaining why the agreed judgments they were asking her to enter were "fair & reasonable" & in the public interest. The parties made that submission yesterday. It's interesting...
2/ By way of background, the agreed judgments would settle claims the SEC brought against Musk (in a widely publicized Sept 27 lawsuit) and against $TSLA (in a lawsuit filed only after settlement was reached).
3/ The claims related to the massive lie Musk told on August 7 when he tweeted he had billions of dollars of "funding secured" for a take-private buyout of $TSLA, with the only contingency being shareholder approval.
4/ There as plenty of drama as the parties negotiated the agreed judgments. The SEC had prepared its lawsuits, but held off on filing while it attempted to settle. Per news reports, the parties reached a deal on September 26.
5/ But at the last minute, Musk walked away from the deal & demanded $TSLA do likewise. The SEC filed its suit against Musk on Thursday, the Tesla share price tanked on Friday, and on Saturday Musk & Tesla came crawling back, accepting a settlement less favorable than the first.
6/ The settlement terms are set forth in two agreed judgments, one against Musk & the other against $TSLA. Both agreed judgments require Court approval. Which is typically automatic. But not this time.
7/ The agreed judgment for Musk would require he pay a $20 million fine & step down as Board Chair. The agreed judgment against $TSLA is more sweeping. Indeed, it's astonishing.
8/ Besides paying its own $20MM fine, $TSLA must appoint an independent Board Chair & at least one other independent member. Those independent members must for a committee to create & enforce regulations about Musk's written communications. Unusual?
9/ Yes, quite unusual. The powers of the independent committee would typically be exercised by the CEO & CFO. That's a real slap at Musk and $TSLA's CFO, Deepak Ahuja.
10/ And the SEC did not stop there. $TSLA's independent committee also must hire a corporate attorney "not unacceptable" to the SEC to guide the committee and Board.
11/ In other words, the SEC recognizes that $TSLA's General Counsel, Todd Maron, is in way over his head. No surprise, as his prior experience was in family law. He was Musk's divorce attorney.
12/ So the proposed settlements would require $TSLA's Board to take control of Musk's behavior & firm him if he would not comply. If the Board failed to do that, blame would shift to the Board, meaning exposure to liability from shareholder lawsuits.
13/ Last Thursday, after the agreed judgments had been submitted & the Court had requested the letter, Musk went on a tweetstorm, calling the SEC the "Shortseller Enrichment Commission." Some speculated this might prompt the SEC to attempt to back out of the deals.
14/ The SEC did not. Yesterday, the parties delivered to the Court their Joint Submission. But it was a bit odd. Not a letter of up to 11 pages, as the Court had requested, but a terse, formal document of only 7 pages.
15/ Remember, the Court had sought an explanation of why the agreed judgments were "fair & reasonable" with "the public interest not disserved." Does the Joint Submission accomplish those tasks?
16/ Not really. The first few paragraphs recap the case's history. Then, a summary of the settlement terms. Then, a page of legalese about the scope of review.
17/ Finally, on page 4, the SEC clears its throat to explain why the terms are fair, reasonable, and in the interests of the public & investors. Yet all the SEC does for the next three & one-half pages is restate the terms of the deal.
18/ Then, on page 7, one sentence from $TSLA and Musk, who announce they "believe a prompt resolution of these [lawsuits] through settlement is in the best interests of investors and should be approved."
19/ Very odd. Not a word of remorse from Musk's counsel. Not a clue from $TSLA that its Board views the remedies as fair or reasonable, or an acknowledgment that its Chair & CEO had acted wrongfully.
20/ In other words, the Joint Submission appears to be 99% the work of the SEC lawyers. My sense is that $TSLA & Musk may have refused to participate more than minimally in its preparation.
21/ Musk hates this settlement. He wants & needs to be in complete control of $TSLA. He wants & needs to be able to pump the stock with abandon. But if the Board does what is required of it, Musk loses much of those abilities.
22/ In the usual settlement, all parties feel that even though it's far from what they hoped for, it's the best that can be done without incurring the risk & expense of a trial. This settlement? It doesn't feel like that.
23/ My guess is that the parties are not feeling any sense of relief at a resolution. Rather, the SEC is livid with Musk, and will be watching the $TSLA Board to assure compliance. And among the defendants, Musk feels betrayed by the Board, & vice versa.
24/ Meanwhile, the SEC continues to investigate $TSLA and Musk, and the Department of Justice is at work, too. Not to mention the civil lawsuits now given new juice. These agreed judgments fall far short of solving all Tesla's legal woes.
25/ As for U.S. District Court Judge Nathan, well, you never know. She may yet surprise us with what she decides to do. The story is far from over.
(should say "fire him")
A/ On reflection, I've been unfair to the SEC & mischaracterized its submission. The SEC does explain that the agreed injunctive relief will enable the court to use contempt powers to more quickly address future violations...
B/ Also, anticipating criticism that it was too lenient, the SEC points to Defendants' rapid willingness to settle, the evident lack of pecuniary gain, & the relatively short-lived duration of the violations.
